Case Study #83: How One Founder Sold His Business for 65x Revenue

Selling a business is often portrayed as the culmination of an entrepreneur’s dreams — a big achievement that signifies success. However, the reality is that the experience is often full of complexities and challenges.

Michia Rohrssen, founder of Prodigy (now owned by Upstart), knows firsthand what an emotional rollercoaster selling a business can be. He initially viewed it as a straightforward process — little did he know the intricate web of negotiations, investor dynamics, and personal reflections that awaited him.

The Initial Offer

Michia founded Prodigy with friend Marty Hu to create a platform that would allow consumers to purchase a car all from the comfort of their own homes. The software was used by some of the largest auto groups in the world, and at the height of its success consistently processed billions of dollars in car sales.

Michia wasn’t planning on selling when he was approached with an initial offer of $110 million from Upstart. He faced a pivotal moment: as excited as he was, he realized the importance of maintaining a balance. Sharing this news with his team and ensuring a smooth transition required strategic planning. The delicate nature of handling investor dynamics was a lesson that played a crucial role in what happened next.

Handling Investor Dynamics

During the negotiation phase with Upstart, Michia and his team were also in the delicate process of closing a substantial funding round led by prominent investors, including a notable venture capital firm.

The stakes were high, and momentum was crucial. So when an investor who had previously injected $25,000 into Prodigy decided to demand a return on his investment, Michia was in trouble. They were on the brink of finalizing a $5 million round, a significant milestone for the startup and this investor’s sudden change of heart, seeking the return of a relatively small amount in the grand scheme, posed a threat to the entire process.

At this point, it wasn’t only about the money. Rather, it was about the potential disruptions to the larger funding round which could raise concerns about the stability of the company.

Michia decided to gather the other investors and emphasize the critical nature of the ongoing negotiations with Upstart. They needed unanimous support to address the lone investor’s claim and secure the future of the deal.

Ultimately, his team’s resilience and the swift (and positive) response from his other investors played a pivotal role and prevented a potential derailment.

The Earnout Dilema

While joining Upstart and achieving his lifelong dreams was exciting, Michia knew the earnout specifics were equally important. Mentors had warned him about the importance of advocating for a shorter earnout — beyond monetary concerns, they urged him to think about his future interests and whether or not they align with the acquiring company’s plans.

The earnout dilemma demands a delicate negotiation, balancing immediate gains with long-term commitments. The emotional high of sealing the deal can make it easy to overlook details, but this part of the discussion requires careful thought.

Looking back, a more assertive discussion about the earnout terms could have added a substantial $4 million to the deal. It’s a lesson Michia learned the hard way, and now shares as a cautionary tale for other entrepreneurs who are navigating acquisitions.

Ultimately, Michia accepted Upstart’s initial offer of $110 million. After the sale, he and his wife moved abroad and now travel frequently, enjoying the break from the hustle and bustle of Silicon Valley.

Key Lessons

• Keep your poker face: Michia’s ability to stay cool, calm, and collected during the sale process was crucial. The uncertainty inherent in negotiations can be emotionally taxing, and entrepreneurs need to remain resilient and prepare for the possibility of deals falling through while staying focused on the business’s core strengths.
• Investor relationships sometimes come with challenges: Founders should build healthy relationships with investors, making sure both sides have the same long-term goals. If conflicts arise, quick and smart moves might be necessary to resolve issues and keep the company stable, especially during important negotiations.
• Earnout terms require careful consideration: Remember to carefully consider the terms of earnouts, balancing short-term gains with long-term goals. Michia’s story serves as a valuable lesson for future entrepreneurs hoping to sell their businesses.

From handling investor dynamics to navigating the earnout dilemma and embracing post-sale emotions, Michia’s story is a testament to the multifaceted nature of creating, building, and selling a business. Beyond the financial gains, the decision to sell involves a delicate dance of negotiations, self-reflection, and ultimately, choosing a path aligned with your values.

If you need help along this journey, we’re here for you. Give us a call today.