7 Reasons Entrepreneurs Have Turned Down Big Money

Posted on October 17th, 2017
Funding

7 Reasons Entrepreneurs Have Turned Down Big Money

 

Entrepreneurship is full of stories of big acquisitions and multi-million rand investment rounds.

What we hear less of are those entrepreneurs that said no to a buyout or a massive investment offer.

Selling or getting an investment is not the goal of every startup founder. The reasons why entrepreneurs reject offers vary as much as their reasons for launching businesses – everything from not needing the money, VC incompatibility, wanting to retain control, or the desire to build a world-changing company.

Here are 7 times startup founders have said no to big bucks and most importantly, WHY.

1. Disagreeing with the investor’s politics
Founder: Kimberley Bryant, Black Girls Code, a technology training platform for girls
Offer: $125 000

In an interview with Tech Crunch, Bryant said her decision to reject the offer was influenced by allegations against Uber regarding its culture of sexism and lack of diversity.

She went on to say that Uber’s offer to Black Girls Code felt “a bit tone-deaf to really addressing real change in how they are moving towards both inclusion and equity.”

Ultimately, Bryant said it felt like a PR move, so she turned it down.

In September, Black Girls Code announced that they had successfully raised over $145 000 from the tech community over one weekend via PayPal.

2. Playing the long game
Founder: 
Evan Spiegel, Snapchat, a social sharing platform
Offer: $3 billion

In 2013, the then-23-year-old-founder, according to a Mashable article, turned down Facebook because of the long-term potential of the platform.

“There are very few people in the world who get to build a business like this. I think trading that for some short-term gain isn’t very interesting.”

“I am now convinced that the fastest way to figure out if you are doing something truly important to you is to have someone offer you a bunch of money to part with it,” Spiegel says.

3. Startup being undervalued
Founder: Senso, a wearable digital device that detects and communicates sounds, founded by Zuko Mandlakazi
Offer: R500 000

Senso developed a wearable wrist device that detects sounds and communicates them to the user through vibration and LED lighting, alerting them to potential danger.

The founder turned down a R500 000 investment offer for a 50% equity stake of his company because he felt the startup was worth a lot more.

“I knew from my gut feeling that Senso was worth way more than that, even though I couldn’t necessarily produce evidence to support my valuation, so I walked away from the deal,” he says.

Mandlakazi did, however, go on to find investors. The company raised over a million rands from entertainment company Multichoice Holdings and the Gauteng-based tech incubator, The Innovation Hub, in addition to winnings from entrepreneurial competitions and smaller funding rounds.

4. VCs not a good fit
Founder: Harriet Pleydell-BouvierMallow and Marsh, a gourmet marshmallow producer
Offer145 000 euros

One from reality TV, in 2014, Pleydell-Bouvier appeared on the entrepreneur television show Dragon’s Den, hoping to convince the Dragons to invest in her marshmallow business, she says in an interview with Business Zone.

The success of the pitch and the response she received from the Dragons made her reconsider giving up equity, she says.

“As I stood there my confidence kicked in and I had to assess what they wanted from me. They do ask for an awful lot, and I wondered how involved they could really be with my company as they fund so many. I really wanted a hands-on investor, as it was just me at the time, so I really wanted someone there to bounce off.”

5. Wanting to keep control of the business
Founder: Sihle MagubaneSihle’s Brew Barista Love, a South African coffee enterprise
Offer: R2.5 million

Magubane started his business in 2012, after obtaining his Barista Skill Certificate and working as a barista for a number of years.

Magubane says being 100% independent has always been important to him, and that he did not want to give the business away to investors before he felt it had reached its full potential, he said in an SME South Africa interview.

“In my company, since I’ve [started] trading, it’s 100% owned by myself because if I brought in investors they won’t understand my vision. I’ve refused R2.5 million for my company because I said these are the terms and conditions I want for my company to grow and if I sell my shares now, two to three years down the line the same company will be worth billions,” he says.

6. Holding out for a bigger offer
Founder: Dennis Crowley, Foursquare, a location intelligence social networking platform
Offer:​ $100-120 million

Foursquare was one of the first sites to exist entirely on a mobile platform. Both Facebook and Yahoo! made Crowley buyout offers, according to an article by Mental Floss, but Crowley rejected both in favour of a higher asking price. ​

According to Business Insider Crowley had already sold one company to Google, Dodgeball, and he regretted it after Google shut down the location app.

Seven years later, the platform is still active and still under the control of Crowley.

7. VC’s not sharing the same vision
Founder: Mark Zuckerberg, Facebook, a social sharing platform
Offer: $1 billion

Facebook is today the world’s biggest social media platform with over two billion monthly users. Founder Mark Zuckerberg in Facebook’s early days had many buyout offers from major tech companies, including MySpace and Viacom. The biggest, however, was from Yahoo!.

Zuckerberg rejected the offer, according to a 2017 Business Insider article, because he felt Yahoo! did not share the vision he had for Facebook, or see its full potential.