The Myth of the Sale

What happens when a founder sells—and what almost never does

Last week I spoke to a group of founders about the startup sales process and its many misperceptions. A few days later, the news broke that Everlane was being sold to Shein for around $100 million, and most of the commentary framed it as a moral story about a brand that betrayed its values. That framing is wrong, and the wrongness of it is what I want to write about today. There’s a lot more to it.

Reading the Everlane situation

Here’s my read after looking at the publicly available facts. The original founder, Michael Preysman, had been gone for five years before this sale. L Catterton, a private equity firm, took a major stake in 2020 and eventually became the majority owner. By the time the Shein deal closed, Everlane was carrying about $90 million in debt. L Catterton and the current CEO had been quietly looking for a buyer or new investor for over a year. The board approved the sale over the weekend. Common stockholders are reportedly receiving nothing.

The decision doesn’t appear to have been made by anyone you’d recognize as a founder. It was made by a board, controlled by a PE firm, in a process driven by debt that had to be cleared. Once a board has decided to sell, its legal duty is to maximize value for shareholders, which in practice usually means taking the highest bidder regardless of what the brand stood for. That’s how a sustainability-focused, radical-transparency brand ends up sold to a fast-fashion company that represents close to the inverse of those values.

In short—sales are way more complicated than people realize, and almost never a moral decision of the founders. I will continue to demystify the sales process below—not to discourage you from building, but to prepare you for it.

Where founders actually land

According to data from Correlation Ventures, which has analyzed over 27,000 US venture financings, there is roughly a 1 in 10 chance a venture-backed founder walks away with meaningful money from a sale. The rest either don’t make it to a sale at all, or they sell but don’t make money from it.

The first group—the companies that don’t make it—is the one most people picture when they imagine startup failure. The company runs out of cash, and they shut down.

The second group is the one rarely talked about. These are the many companies that sold—sometimes for headline-grabbing numbers, sometimes without specifying the sale price—but where the founders walked away with little or nothing. Publicly, it looks like great news. Privately, the founders are processing the fact that the years of work didn’t translate into the outcome they were told it would.

This is the group I want to spend time on, because many founders end up here—much more than you realize. We just don’t talk about it.

What a sale actually is

A “good” sale often goes like this: A strategic buyer wants the company badly enough to pay a real premium. The company has multiple competing offers and gets to choose. These are the sales people are usually picturing when they imagine an exit, and they’re real—but as the data above shows, they’re also rare. The vast majority of venture-backed companies that sell are selling for a different set of reasons entirely.

Most sales happen because something forced them. The company is running out of cash, or an investor pulled out at the last minute, or a debt position needs to be cleared, or a strategic buyer made a move that, because of investor pressure, can’t be refused. Sometimes the founder has a health crisis or a major life event that makes continuing impossible.

In all cases, good and bad, founders don’t fully control the decision. In most venture-backed companies, preferred shareholders hold a separate veto right over any sale, which means the founder needs their approval to sell at all. In the other direction, drag-along rights typically allow a majority of preferred shareholders to force a sale that the founder doesn’t want, on terms the founder didn’t choose. Investors also usually hold board seats, often a controlling number of them, which gives them additional influence over both whether to sell and who to sell to. In practice, this often means investors are the ones with the legal power to decide when an exit happens.

There are several different shapes a sale can take. An extended sale process gives you time and lets you choose your buyer. An auction process opens you up to multiple buyers at once. An ABC, or assignment for the benefit of creditors, is when a financial firm takes over your assets and finds a buyer on your behalf, often used as an alternative to bankruptcy. An acquihire is when the buyer is really after your team, and the company itself gets wound down in the process. Each one carries different odds for the people involved, and is usually chosen based on runway available and company position.

Even when the sale price sounds healthy, the math underneath often isn’t. The waterfall of who gets paid in a sale follows a strict order. Creditors get paid first—any outstanding loans, credit facilities, or debt secured against the company’s assets has to be cleared before anyone else sees money. This is what happened with Everlane, where roughly $90 million in debt had to come out of the sale price before the question of equity holders even came up. Preferred shareholders—your investors—get paid next, according to the terms in their original agreement. Their initial investment, often a multiple of it, comes out before common stockholders see anything. Founders are paid last, if at all. More acquisitions go this way than the press releases suggest.

In summary, most sales are driven by forces outside the founder’s control, and the math rarely produces a meaningful payout for the people who built the thing. It’s also a part of the process that gets very little public discussion.

Why companies get bought

The other side of this question is just as important. Founders tend to imagine that a buyer wants what they want, which is to see the company continue and to honor what was built. But buyers buy for their own reasons, and most of those reasons have very little to do with preserving the company’s original vision.

Some buy to control. They want the market position, the customer list, or the channel that the company has built, regardless of whether they intend to keep the product running in any recognizable form. Walmart’s $3.3 billion acquisition of Jet.com in 2016 is one example. Walmart wasn’t buying Jet to keep operating Jet—it was buying Marc Lore and his team to build out Walmart’s own e-commerce infrastructure. Within four years, the Jet brand had been absorbed and shut down. The earlier-stage version of this is the strategic investment arm of a large corporation taking a minority stake in a smaller company, often years before any acquisition. Research published in Strategy Science by Ji Youn Kim and Haemin Dennis Park found that early corporate venture capital funding makes a company significantly less likely to reach an IPO, especially when the founders are first-time entrepreneurs. The corporate investor’s strategic interests start shaping the company’s direction from the moment they’re on the cap table, often deviating from the founders’ original vision.

Some buy to kill. The acquired company poses a competitive threat, and removing it from the market is the point of the acquisition. This pattern is well-documented enough that economists have given it a name. A 2021 study in the Journal of Political Economy by Colleen Cunningham, Florian Ederer, and Song Ma found that in the pharmaceutical industry, roughly 7% of acquisitions were “killer acquisitions” in which the acquirer bought a smaller company specifically to discontinue a competing drug under development. At earlier stages, this can look like a strategic acquirer buying a small competitor through their corporate venture arm and quietly winding down its product, which tends to get very little public attention.

Some buy to change. Beyond repositioning the brand, this category often seems to be driven by ego or hubris—the acquirer believes they can run the company better than the founders did, or wants to put their stamp on it. Yahoo’s $1.1 billion acquisition of Tumblr in 2013 is one well-known example. Marissa Mayer publicly promised “not to screw it up,” and by 2019, Yahoo’s parent company, Verizon, sold Tumblr to the owner of WordPress for under $3 million, a value destruction of more than 99%. The current Everlane–Shein situation is another version of the same dynamic. At smaller scales, this pattern shows up often in consumer brand acquisitions, where strategic acquirers take a beloved DTC brand and try to “professionalize” it into something bigger, often killing the qualities that made customers love it in the first place. Walmart’s $310 million acquisition of Bonobos in 2017 followed a similar arc—Walmart sold Bonobos in 2023 to a different buyer for $75 million, roughly a 76% decline.

And some buy because that’s the only thing they know how to do. They aren’t builders. They have capital to deploy, and so they acquire what other people made and try to make it work inside their structure. The smaller-scale version is the aggregator—wealthy individuals or firms buying portfolios of brands they have no operational competence to run. We’ve seen a lot of this the last few years.

This isn’t necessarily a moral failing. It’s largely how the market works. Buyers tend to act according to their own incentives, which are usually structural and financial rather than mission-driven, and the founders who built the original company often have limited influence over what happens after the deal closes.

The sale itself

Even when the sale happens and the money clears, the experience tends to be harder than founders are told to expect. This is true on two levels—what happens to your role, and what happens to you personally.

For one, founders often don’t get to leave when the sale closes. Most acquisitions include an earn-out, a retention bonus, or restricted stock that vests over two to four years. To get the full payout, the founder has to stay and work for the acquirer, often inside a culture they didn’t choose, running a company that no longer feels like theirs. This is what’s known as “golden handcuffs,” and it traps founders in a version of their own company that they can no longer shape. Many leave the moment the vesting cliff is up, sometimes walking away from significant remaining money just to be free of the situation.

The second category is more personal, and it’s the one the industry is just starting to talk about. Even founders who sell for large sums often describe what comes next as one of the hardest periods of their lives. Vinay Hiremath, who co-founded Loom and sold to Atlassian for $975 million in 2024, wrote publicly about the aftermath, where his relationships fell apart and he spent a year disoriented and searching for what to do with his life. Markus Persson, who sold Minecraft to Microsoft for $2.5 billion, posted publicly on Twitter that he had “never felt more isolated,” and his very public unraveling became its own news cycle.

There are quieter but common versions of these post-exit problems. Founders who get taken advantage of because they don’t know how to set boundaries around their new wealth. Founders whose marriages and friendships don’t survive the transition. Founders who burn through what they earned because the money never felt connected to anything real. A 2015 University of California study found that 49% of entrepreneurs reported experiencing some form of mental health condition during their careers, and the period after a major sale is one of the times these patterns most often surface. There is now a growing category of support groups specifically for founders dealing with post-exit depression, including The Exit Club, which Louis Debouzy founded after his own sale left him struggling with anxiety and emptiness he had never experienced before.

The point of naming all of this isn’t to argue that selling is bad. The point is that the sale itself is rarely the clean, freeing event it’s described as, even at the high end. If you’re expecting the exit to be the reward for all of the hard work and struggle, it is statistically almost certain that you will be disappointed.

What to do instead

Again, I’m not saying not to build. I’m saying to build with these truths in mind.

Here’s how I suggest you approach things, knowing what you know now:

The first is to become comfortable with the reality and the risks. It’s still great, and often necessary, to raise capital. Some businesses can’t get to launch without significant funding—consumer hardware, deep tech, biotech, anything capital-intensive—and venture capital is often the right tool for those companies. The point of this piece isn’t to argue against raising money. The point is to argue against raising money without understanding what you’re actually signing up for.

The founders who navigate the fundraising landscape best are the ones who know the math. They know what their preference stack looks like, what their investors need from an outcome to be happy, what kinds of buyers their cap table will accept, and what the realistic distribution of outcomes is for a company in their position. They’ve already accepted that an exit might not happen, and that even if it does, it might not produce a meaningful payout. None of that stops them from building. If anything, it makes them more deliberate about what they’re building and why.

That combination of knowledge and fearlessness comes through in fundraising. Investors can feel the difference between a founder who is desperate to raise and a founder who has internalized the reality of what they’re asking for. The first founder is at the investor’s mercy. The second founder has leverage, because they have already done the work of understanding their own risk.

The second is to make early profitability the goal. This is a different orientation than the standard venture playbook, which treats profitability as a problem for later and growth as the only metric that matters now. Both can be true at the same time—you can grow aggressively and still build toward profitability—but the founders who get there earlier have many more options when something goes wrong.

In practice, this might mean building a business model that can sustain itself sooner, or it might mean choosing investors who actually want profitability rather than ones who only want growth. There’s a growing category of funds designed around this. Calm Company Fund uses a structure called a Shared Earnings Agreement that doesn’t take equity upfront and lets founders buy back ownership through profits. Indie.vc has been investing in companies on a clear path to profitability since 2015. TinySeed runs a year-long accelerator for capital-efficient B2B SaaS companies and has funded over 210 startups across six continents. There are others too.

There are also more options now for non-equity financing than there used to be. Lighter Capital and Capchase offer revenue-based financing, where you borrow capital and repay it as a percentage of future revenue without giving up ownership. Hercules Capital and other venture-debt lenders provide larger loans to venture-backed companies, usually as a complement to equity rather than a replacement. SBA loans remain one of the more underused options for founders building toward profitability. None of these are right for every business, but the menu of options outside traditional venture capital is wider now than it has been in a long time.

The deeper point is that profitability is what gives a founder real optionality. A profitable company can keep operating without anyone else’s permission. It can choose its buyer, or choose not to sell at all. It can raise on its own terms, or not raise. The math in the rest of this piece—the preference stack, the forced sales, the buyers who don’t share your vision—is largely the math of companies that need outside capital to keep going. The fastest way out of that math is to not need it.

H

---

If you’d like to dig deeper:

The data on what actually happens to venture-backed companies

The most-cited research here is from Shikhar Ghosh at Harvard Business School, based on more than 2,000 venture-backed companies that raised at least a million dollars between 2004 and 2010. Harvard Business School News, “The Venture Capital Secret: 3 Out of 4 Start-Ups Fail” — available free online.

The distribution of venture outcomes

Correlation Ventures has published the most comprehensive breakdown of return distributions across the venture industry, analyzing tens of thousands of US financings. David Coats, “Venture Capital — We’re Still Not Normal,” Correlation Ventures (2023) — available free on Medium.

How the preference stack works

Carta’s plain-language guide is the most accessible overview I’ve found. Carta, “Liquidation Preferences: Standard & Non-Standard Terms” — available free online.

What acquisitions actually look like from the buyer’s side

Elad Gil’s chapter on M&A in High Growth Handbook is the clearest treatment of how acquirers think and how acquihires get structured. Gil is a former VP at Twitter and one of the more prolific founder-investors in the Valley. Elad Gil, High Growth Handbook (2018)

The research on why acquirers buy

Two peer-reviewed studies are worth knowing about. The first is the “killer acquisitions” paper, which documents how often large companies buy smaller ones specifically to shut them down. The second looks at how corporate venture capital changes the trajectory of the startups it invests in. Cunningham, Ederer & Ma, “Killer Acquisitions,” Journal of Political Economy (2021) Kim & Park, “Two Faces of Early Corporate Venture Capital Funding: Promoting Innovation and Inhibiting IPOs,” Strategy Science (2017)

Alternative capital models

A small but growing set of funds operate outside the standard venture model, each with a slightly different approach to backing profitable, sustainable companies. Their thesis pages are useful reading for any founder thinking about whether traditional VC is actually the right fit. Calm Company Fund Indie.vc TinySeed

Non-equity financing for startups

For founders who want capital without giving up ownership, there are more options now than there used to be — from revenue-based financing to venture debt to SBA loans. Lighter Capital Capchase Hercules Capital SBA Loans