Browse > Home / Startups / Blog article: How to prevent your investors from selling!

How to prevent your investors from selling!

April 10, 2008

http://www.biggerpockets.com/renewsblog/wp-content/uploads/2007/12/poison_sign.pngOne day everything is going along great with your business and your investors decide they want to sell.  You don’t want to give up your personal secretary, the company car or the free Cokes.  Your investors keep talking about getting a better return on their money or some such nonsense, but you are happy with the status quo.  Then one day, POOF! Your investors get a letter from another company who wants to buy the company.  You would do anything to prevent them from selling.  You and your friends still control the board so you have a little time to try to stop the deal from going through.  How do you prevent your investors from selling?

If you are Yahoo! you do your best to screw up your business as fast as possible.  Make yourself so freaking unappealing no one could possibly swallow the poison pills you have taken.  Yahoo began screwing up their business in February by entering into agreements will all current employees that provides 24 months of severance pay if they are terminated.  Once Yahoo’s HR department finished operation foobar, the revenue generating side of the business (ad sales) decided to turn over advertising to the companies #1 competitor, Google!  Next Yahoo decided to find an albatross to hang around their neck, preferably a company that has already destroyed another company.  According to the WSJ, Yahoo is close to completing a deal to acquire AOL from Time Warner.  Time Warner could never swallow AOL and it almost destroyed the company, so it is a perfect fit for a suicidal Yahoo.

Of course, some of Yahoo’s investors are freaking out.  Legg Mason almost coughed up a lung when Microsoft suggested they would lower their bid.  Realizing that Yahoo is on track to ruin their business, investors couldn’t imagine NOT selling to Microsoft.  They would be stuck with an asset that is worth considerably less than it was just a few months ago.  Ironically, Yahoo’s only hope is to be acquired by Microsoft…

Written by Alexander Muse · Filed Under Blog, Startups 

Comments

One Response to “How to prevent your investors from selling!”

  1. Hippy Says:
    April 10th, 2008 at 3:10 pm

    Your latter two points are very well taken (the AOL deal especially: what a mess), but I would chime in that the former is only about 33% true. Although there is a poison pill aspect to the severance packages (it only kicks in if the company changes control), I really think this was mostly about employee retention under the assumption and/or hope they would win the fight.

    I just recently moved from the Bay Area, and it’s extremely difficult for employers to find and retain good (technical) talent. Google and many others would love the chance to hire more than a few stars out of that company. Other employees might decide that this is as good a reason as any to begin working on that startup idea they’ve been kicking around. A situation like this could otherwise cause an exodus of employees and instill low morale in those that remain. If they lose their stars, then regardless how this drama plays out, they will be made irrecoverably irrelevant.

    The severance package was sheer genius for nipping that threat right in the bud. No one likes uncertainty, but now employees have far more to lose by leaving than by waiting things out and to see what happens.

Leave a Reply