21 Year Old Sells Website for $100M, But Did She Do The Math?
The Wall Street Journal reported today that Catherine Cook and her brother, David, sold their website start-up, myYearbook.com, for $100 Million to Quepasa–a public company. It may sound like a fairy tale come true, but the devil is in the details. When the math is done, the picture looks quite different.
According to Business Insider, the deal is for $18 Million in cash and the remainder of the $82 Million is in Quepasa stock. This detail is key when you consider the backstory.
MyYearbook.com was started by $250,000 in funding from Catherine’s older brother. Within a year, the company went out to venture capitalists and obtained financing. The company currently owes $17 Million to investors. With cash payout of only $18 Million, it’s questionable how much cash the Cooks will actually end up with after the investors are paid out. It’s doubtful that the investors would be willing to take Quepasa stocks for their own payback. How much the Cooks can actually cash out from Quepasa stock will depend on their contract and the skills of their accountant and financial adviser.
Catherine’s brother, CEO Geoff Cook, indicated that they turned down several offers back when the market was still hot and several of their competitors were sold. Those competitors are now long gone.
Witness Myspace which was acquired for a staggering amount a few years ago by News Corp and now being offered for as low as $20 Million.
Perhaps the investors in myYearbook.co could be forcing the deal in order to recoup their initial investments while it’s still possible. AOL bought Bebo, a much larger site, in 2008 for $850 Million. Bebo was sold 2 years later for $10 Million, a massive loss for AOL.
If the Cooks’ payout is based solely on Quepasa stock, they would be completely dependent on Quepasa succeeding as a public corporation. (I cannot comment on Quepasa for regulatory reasons.)
If you ever find yourself as a business owner contemplating the sale of your company, there are several key issues you should keep in mind:
1. Will you walk away with anything in hard cash?
2. How much will be left after taxes?
3. Is it a good time to sell? Try to sell when the market is hot.
4. Will you have enough for your retirement or next venture?
5. What are the restrictions if you accept a stock transaction?
6. More specifically, are there any restrictions concerning liquidating the stock you receive?
7. Will the stocks actually be worth anything by the time you can sell? What is the market’s prognosis?
Many business owners have sold their company for stock, paid the taxes, and then left empty handed by the time they can liquidate the stock they received from the buyer.
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