Keep Your Stock When Growing Fast

Shaan Puri believes that when you own stock in a fast-growing small company, you should be very cautious about trading it for another company's stock, even if that company is larger or more established. He sees this as a fundamental question of value and growth potential.

Key Points:

• Keep Your Own Stock When Growing Fast:

  • If your company is growing rapidly, question why you'd trade your stock for someone else's
  • Small companies by nature can grow much faster than larger companies
  • The growth trajectory matters more than the prestige of the acquirer

• Liquidity Concerns Matter:

  • Stock in the acquiring company might not be liquid
  • You're essentially locked into someone else's bet rather than your own

• The Validation Trap:

  • Entrepreneurs can get caught up in the emotional validation of a big company wanting to buy them
  • There's a "full circle moment" feeling (like Marshall working for Andrew when young, then Andrew wanting to buy his company)
  • This emotional component can cloud the financial judgment

• Separate the Emotional from Financial:

  • The "wow, Facebook wants to buy my company" feeling is real but separate from whether it's a good deal
  • Every entrepreneur can have that validation moment, but it shouldn't drive the decision

• When to Consider Alternatives:

  • If the founder wants to sell, consider buying it yourself rather than letting them sell to someone else
  • Better to increase your ownership in a winning asset than dilute it

• Customer Base Quality Matters for Valuation:

  • Real businesses with tight margins (small agencies, ecommerce, home services) are more cost-sensitive
  • These customers live in the "real world" - not VC-subsidized with $50M rounds
  • They're great customers but will shrink workforce during macroeconomic headwinds
  • This affects growth assumptions and valuations