Jason Lemkin, co-founder of SaaStr and a seasoned veteran with four startup acquisitions under his belt—twice as a founder and twice as an executive—offers his invaluable perspective on the complex decision of when to sell a startup. While conventional wisdom suggests accepting the best offer, as many startups never receive one, Lemkin emphasizes that founders often operate with a different mindset, especially once their venture gains traction.

I think one of my top lessons from 2020-2021:

📈If you get a good, solid M&A offer: consider taking it

My thinking before was always:

🙅‍♂️If you have something good, don't sell too early

I still believe that. I just now believe both.

— Jason ⚡️SaaStr.Ai⚡️ Lemkin (@jasonlk) January 11, 2024

Key Scenarios for Selling Your Startup

To help founders navigate this critical decision, Lemkin outlines specific situations where selling might be the most strategic move:

  • Before You Face Imminent Failure: Don't wait until your startup is on its last 30 days of cash. If you have some momentum but insufficient revenue or resources, it’s crucial to sell while you still have time and leverage. Attempting to sell when you're out of money makes securing a meaningful deal virtually impossible.
  • When Your Team Isn't Up to Par: Even if metrics like growth and cash flow look strong, a dysfunctional or underperforming team can be a fatal flaw. If the team cannot self-correct, consider selling when the opportunity arises. Bad teams consistently undermine startups, and it’s often wiser to exit before irreparable damage occurs, even if individual talent is high.
  • When the Offer Exceeds Your 'Magic Number': Every founder has an unspoken 'Magic Number'—a valuation that makes the acquisition unequivocally right, whether it's $1 million, $1 billion, or even $27 billion as it was for Slack. This number isn't purely rational or spreadsheet-driven; it’s the figure that justifies the journey and makes the decision feel complete. Sometimes, there's no such number, meaning you might never sell, but often, this threshold exists.

Critical Times to Avoid Selling Your Startup

While knowing when to sell is crucial, understanding when not to sell can be even more insightful. Lemkin shares his key learnings on situations where holding onto your venture might be the better strategic move:

  • If You're at Scale and Have a Great, Committed Team: For SaaS companies, if you've reached significant scale (e.g., $10M+ ARR) and are experiencing healthy growth with a high-performing, dedicated team, selling is often unnecessary. At this stage, a well-established SaaS company becomes incredibly resilient, continuing to generate value year after year. However, founders must be honest about their team's strength and their own commitment to continued recruitment and growth.
  • Don't Sell Solely Due to Competition: Competition is a constant in the startup world. Threats from industry giants or agile new entrants shouldn't be the primary driver for selling, especially if your company is still growing effectively. As long as you're hitting your strategic goals, competition is a natural part of the landscape and often indicates a healthy market.
  • Avoid Selling Out of Exhaustion: The '5 Year Walk of Death' is a common, unspoken reality in M&A. Many successful founders, after years of intense effort, become fatigued around the four-year mark and may stumble through the fifth, eventually accepting an offer out of sheer tiredness. Lemkin advises against this. Instead, address fatigue by bringing in fresh talent, securing new capital, or finding other ways to revitalize the team and leadership. He notes that some top-tier VC funds even strategically target exhausted founders with lower offers, knowing it's a moment of vulnerability.

Lemkin concludes by reminding founders that opportunities to build and sell are limited. While securing an acquisition can provide financial options and foster courage for future ventures, if you've built something truly substantial, self-sustaining, and resilient, the decision to sell becomes more complex. Ultimately, if you’ve created something genuinely magical and impactful, holding onto it might be the most rewarding path. However, founders must also remember a fundamental truth: once sold, the company is no longer yours—a reality that is neither inherently good nor bad, but simply is.