Capital and the Exit.

The GeoCities Front Desk

The phone rang at the front desk of GeoCities, and the receptionist came to find me. “Bob Davis is on the line for you.” I had been waiting for that call. Lycos had offered to buy WiseWire. Bob Davis, the CEO of Lycos, wanted our technology. The price was too low, and we turned it down.

So I flew out to GeoCities, which also needed what we had built, to talk about a deal. A major investor in GeoCities was also a major investor in Lycos. If GeoCities got interested, word would travel. It did. When Bob called back and the receptionist answered “GeoCities,” he understood immediately. “Let’s get this done.” I flew back, and we got it done. Lycos bought WiseWire.

The receptionist was not the strategy. The strategy started on the first day of the company, with one question: who is the natural owner of this business?

The Core Idea

Capital is a partner, not a product. Most founders shop for money like a commodity: the most of it, at the highest valuation, as fast as possible. The money is the least important thing an investor brings. What you are really choosing is a partner who will sit beside you through good years and terrible ones.

The exit works the same way. The best exits are designed from the beginning. You know who the natural owner is. You know where you stand on the arc. And you decide when to sell based on where you stand, not on how you feel that month.

Every Company Has a Natural Owner

A startup can get bought, die or go public. Most of the ones that succeed get bought. So the most useful early question is not how big can we get. It is who will own this. The natural owner is the larger player for whom your product is not a nice addition but a missing piece.

At WiseWire, Ken Lang and I built one of the first machine learning tools to deliver a personalized stream or directory of information at consumer scale. On the game board, the natural owners were Yahoo, Lycos or Excite. Yahoo already had a directory. Lycos had none. Lycos needed us most. So I started with a deal for Lycos to use our technology. A company that uses your technology, depends on it and makes money from it will eventually want to own it.

Inside that deal I gave Lycos a right of first negotiation, not a right of first refusal. A right of first refusal lets a buyer wait for another offer and match it, which freezes other buyers. A right of first negotiation only gives the first conversation. When the first price was too low, we were free to talk to GeoCities.

Affinnova taught me the same principle from a different seat. Before I started as founding CEO, I drew the game board. Nielsen owned BASES, the system consumer product companies used to forecast sales. It was linear. What we had was nonlinear and far more powerful. If we could prove it, Nielsen was the natural owner. I ran Affinnova for five years and handed it to a new CEO, Waleed Atrachki, who grew it and sold it to Nielsen.

When Your Product Belongs Inside a Platform

In October 1995 I was in our converted warehouse near Carnegie Mellon, close to closing a financing round and nearly out of cash, when the phone rang. It was Bill Harris, executive vice president of Intuit. “Rob, I want to buy your company.” I told him the truth: I would close the financing in ten days, so if he wanted the company, his team had better fly out today. He did. We worked the deal around the clock while my team kept the financing moving in parallel. A Pittsburgh journal later called it the ten-day deal.

A buyer who wants you will move at your speed if you give him a reason to.

Emotionally, I wanted to keep building. Strategically, the picture was clearer. Netscape had gone public that August, and large companies were shopping for working products. NETworth was a better product inside Intuit than outside it. In late 1995 we agreed to sell Galt to Intuit. NETworth became the core of the Quicken Financial Network.

Before the sale, I proposed that we become an online broker-dealer. My board said no. We would need licenses we did not have. In hindsight, we could have been E*Trade before E*Trade. The sale was right for where we stood on the arc. And the licenses my board feared were not only a barrier. They were a moat.

To Raise Money, Ask for Advice

If you want to raise money, ask for advice. If you want advice, raise money. Raising money is a relationship, and it starts long before the check. Select your investors as carefully as they select their investments.

When you make the ask, give the investor more than one reason to say yes. Does it help their other investments? Does it fill a gap in their portfolio? Does it offer a path to getting their money back? Three points of leverage make a yes far more likely than one. But at the end of the day, an investor has to believe in you.

It is just as easy to raise a big check as a small one. So ask whether the thing you are building is big enough to be worthy of your life.

Choose Investors Like Co-Founders

Taking a particular investor's money is a one-way door. Investors are easy to love when times are good. You want one who gets even better when things get hard. The best investors I have had leaned in, gave us confidence when it was scarce and did not get picky or greedy. Sometimes the right move is to return an investor's money and part ways.

If you choose investors like co-founders, you need to know how to choose a co-founder. Co-founding is tougher than marriage. The number one thing I look for is trust, tested three ways.

1. TruthfulIs this person honest? That one is usually easy to determine.
2. ReliableDo I want him in the foxhole with me? When Ciaran Hynes says, “Don’t worry, I got it,” I can go to bed knowing that he has it.
3. CapableCan this person do the job, and will they admit it if not? A gap you know about can be covered. A gap someone hides cannot.

Price Is One Number. Control Is the Rest.

Most founders look at the valuation first. It tells you the least about what your life will be like after you sign. A term sheet is mostly about control: board seats, approval rights, who gets paid first in a sale, and who can put money into future rounds.

Passion dies under permission slips, and some term sheets are long lists of them. For every clause, ask: when this company hits a hard quarter, who will be allowed to decide what happens next? Get a good lawyer, and read the document yourself with that question in mind.

Pick the Seat Where You Add the Most

At Vivox, I was brought in to potentially run the company. When I met the CEO, Rob Seaver, I realized I would add more as chief product officer, and I grew the product. Vivox was later sold to Unity. At Viximo, I was brought in as CEO to lead the company toward its natural owner. It was sold to Tapjoy.

A founder's ego wants the top title every time. A company needs the right person in each seat at each stage.

We Tokenized to Learn

In 2019, Ciaran Hynes, our team at COSIMO and I launched COSIMO X, a tokenized evergreen venture fund. Many people then talked about tokenization as if liquidity would fall from the sky. We did not believe that. We tokenized it to learn what tokenization actually required, and we made it evergreen to see what a fund could be without a fixed end date.

This site does not discuss the fund's terms or performance. Those conversations belong in regulated settings with proper disclosures.

An Exit Starts the Next Loop

Reaching an exit where you have created real value is one of the best feelings you can have. I sold Galt to Intuit. The sale of WiseWire to Lycos was just as life-changing. Every exit also changes how you see yourself and what you believe you can do next.

The exit is not the end of the loop. It is the start of the next one.

This page is an overview of the chapter. The full chapter is in The Creator's Journey.

The Practice

Do these with your cap table and your current plan in front of you.

1. Map your natural ownersDraw your game board. List every company that could own your business one day and what you would complete for them. Circle the one or two that need you most, and take one step this quarter to become part of their business.
2. Sort your capital decisionsWho to raise from, how much, on what structure, whether to sell. Label each one-way or two-way door. Give the one-way doors your deepest attention.
3. Write the partners you wantDescribe the investor you want beside you in your worst quarter. Do the same for your co-founder, and run the three tests: truthful, reliable, capable.
4. Run the sale questionWhere does your company stand on the arc? Does your product belong inside a larger platform? If yes, write who and what would have to be true.
5. Run the evergreen questionIs this designed to end, or designed to continue? Choose on purpose. It changes who you raise from, how you hire and what you promise.