The following is my follow-up take on the negative aspects of "early exits" as talked about on this blog post by Basil Peters:
The excitement around "Early exits" seems like confusion about cause and effect.
This "built to flip" mentality was proven initially very successful in the dot-com explosion, but it seemed to be more like the cresting of the wave. Once large corps began to jump on the technological shifts, they over spent, and start-ups were awesomely successful. At first.
The business models were being engineered to flip. Nobody was crazy, but everyone were modelling their plans on inflated metrics, and expectations. We all thought an ecosystem of larger companies would eat us up, make billions on ads, or IPO. What seemed like sound business models, collapsed, and worse, cascaded.
Now in 2008, we're seeing the same pattern. A healthy technology shift, powered by social networks, and mobile LBS technologies. Plenty of big investors are elated about this stuff, which is fuelling hundreds of start-ups entrepreneurs to build cool facebook apps or mobile LBS services. But, very few start-ups are actually planning a strong value chain to the dollar, and too many are relying on getting bought by Google.
I personally hate the "Early Exit" from an innovator's stand-point. The whole concept is revolting. It's not respecting my passion to realize a bigger picture. Building to flip, is building another twitter.
If investors really wanted to reduce their risks, it's time we talk about smaller multiples, with sound opportunity to build bigger. Embrace the creative mind, and lets make sure we've got the foundation to scale up big and keep the visionary on-board.
Have a look at this great video of David Heinemeier Hansson (author of Ruby on Rails) at Startup School '08 about addressing the Fortune 5,000,000 and creating a profitable start-up. He nails a lot of delusions on both the investors and entrepreneur perspectives. (Jump to 17:20)
Definitely check out the comments on Basil's post... There's some great other perspectives, both for and against. All of it brilliant.
Hope this puts some perspective out there, ;)