An investor's advice to look past the payout
The advice came from a partner at one of the largest late-stage investors in the internet business. That context matters for how to read it.
If you have an urge to build something that could change the world, don’t focus on the money, but the legacy you’ll leave behind.
Alexander Tamas said this on stage at the LeWeb conference in Paris this month, interviewed by the event’s founder, Loic Le Meur. Tamas is a partner at DST, the Russian investment group behind the Mail.ru Group, which since the spring of 2009 has put large sums into Facebook, Zynga and Groupon at valuations that startled much of the industry. An investor with that record telling founders to look past the money is worth reading closely, because investors like DST make their returns precisely when founders decline to sell early.
That is not cynicism about the advice. The pattern behind it is real. In 2006 Yahoo offered to buy Facebook for about a billion dollars, and Mark Zuckerberg turned it down. Four years later, the company’s private valuation is many times that figure. Founders who are building something they believe will matter for decades tend to make different decisions from those who are building toward a sale: they hire for the long run, they refuse deals that would distort the product, and they are harder to buy. When the thing works, that patience is where the largest outcomes come from, for founders and investors alike.
The difficulty is that legacy is only visible afterward. At the moment of decision, a founder turning down an offer cannot know whether the company is Facebook in 2006 or one of the many startups whose best offer came and went. Friendster reportedly declined an offer from Google in 2003 and never came close to that value again. Holding out for the legacy is a bet, and the losing side of it is invisible in conference talks.
Money also has a way of deciding whether there is a legacy at all. A company that runs out of cash leaves nothing behind. Founders without savings, or with families depending on them, cannot treat money as a distraction; for them an early sale or a steady salary may be what allows them to build anything later. Many founders take some money off the table in a later funding round precisely so they can stop thinking about it.
A fairer version of the advice would separate two things. Do not let the chance of a quick payout decide what gets built. Do pay close attention to the money that keeps the company alive long enough to leave something behind. Tamas’s sentence covers the first and says nothing about the second, and most failed startups die of the second.