How To Startup Part 8: Exits

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

How To Startup Part 8: Exits
Image by Master1305/ Shutterstock

Welcome to the last installment in the “How To Startup” series and an often overlooked step when creating a business: exiting. In short, an exit strategy is exactly what it sounds like - a way out, sort of. I say sort of because frequently a sale of a company is just a new beginning, but more on that below. Startups usually seek an exit to generate investment returns for their investors and shareholders (usually including their employees), or sometimes to limit losses. It is important for founders to keep the possibility of an exit in the back of their minds at different stages of the business’ growth. Some startups are “big swings” where founders and their investors believe the idea and the team have the potential to turn the company into a multi-billion dollar public company. But many startups are smaller ideas where a smaller sale is a good outcome and is something always to be explored. It is important for founders to know which of these best describes their company.


As we’ve already learned in previous installments, the most successful entrepreneurs are the ones who plan ahead. So now that your company has traction and growth—or you’re a proactive entrepreneur who wants to get ahead—it’s time to think about an exit for the business.

Types of Exits

There are many different common exit strategies, but ultimately the one you choose will depend on your own business, personal and financial goals. I cover some of the pros and cons of each strategy below.

Liquidation

Failing, but “failing fast” and liquidating can sometimes be the best route to minimize losses for a business. You’ll likely find yourself in one of two scenarios when considering a liquidation: you’re already at the end of your rope - be it financially or otherwise - or you can see the end coming. If you’re fresh out of cash, evaluate how you can responsibly wind down the business for all parties involved - yourself, employees and investors. If you can tell early on that you don’t have product-market fit or traction and you still have cash left, plan to exit early and return money to investors. A great example of this is when Jeffrey Katzenberg returned $350M to investors instead of simply running Quibi until it was out of cash.

Sale or Acquisition

If you plan to sell your company (a.k.a. if it is getting acquired), you can receive payment from the acquirer in cash, stock or a combination of both. The acquirer can pay you cash for the company or you can exchange your stock in your company for shares of stock in the newly combined company. This will let you maintain being an active participant and shareholder as the company continues to grow. It’s not common in tech for acquisitions to involve both cash and stock. If you believe the company is poised to continue scaling, then definitely consider receiving stock as a part of the transaction. A famous example of this is when Facebook purchased Whatsapp for $4B in cash and $12B in Facebook shares in 2014, helping them grow into developing markets. The Facebook stock that Whatsapp shareholders received ended up being worth many multiples of the $12B which it was valued at during the time of the deal.

The amount a startup can sell for is determined by a few factors. Here are a couple of examples of how valuations are determined:

- If it’s a small company worth <$10M, it’s probably an acquihire (the process of acquiring a company primarily to recruit its employees). In this case, acquirers usually value the target based on how many engineers or product people are at the company.

- If it’s a deal worth <$100M, it’s usually priced more on strategic fit than real analysis such as what the target brings to the acquirer. This could be technology, a great team, a new business line they can build on, great potential of the merger, etc. For example, when I was CEO of Zillow we acquired 16 companies, most of which were in the $10M-$100M price range, and we always determined fair value by focusing on the overall level of strategic fit of the target more than evaluating the actual financial results of the target.

- If it’s a bigger deal with >$100M, the target’s financial results are usually benchmarked against other public comps and require real math to analyze. At deals of this size, advisors such as investment bankers usually participate in the deal and bring the analytical rigor and external perspective needed to evaluate the fairness of the deal for both sides.

Sometimes a sale is the end of the road for a company. But more often than not, it is just the beginning of the next chapter. For example, when Zillow acquired StreetEasy, the leading real estate portal in New York, we invested significant resources to grow the company after the acquisition. We added headcount, rebranded the company, invested in advertising and grew it substantially post-acquisition. Far from the sale being the end of the company, it was really just the beginning. Another example is Google’s acquisition of YouTube in 2006 for $1.65B of stock. At the time, YouTube was struggling with a myriad of legal and copyright infringement issues from content owners and was struggling to keep up with user demand. Under Google’s ownership, YouTube cleaned up its content copyright issues, invested tens of millions of dollars in technology to improve the service, and today YouTube is probably worth at least $100 billion under Google’s ownership and stewardship.

Initial Public Offerings (IPOs)

Traditional: Taking a company public is one of the ultimate goals for many founders, but it’s not exactly the finish line. In fact, it’s quite the opposite. For example, I named our IPO preparation at Zillow “Project Step” to emphasize to the team that it was just a “step” along the way towards building a great business.

In an Initial Public Offering, a company sells shares for the first time to public shareholders, and the stock is then traded on a stock exchange. This can be beneficial for a few reasons, such as being able to raise capital, get research reports written about the company and create liquidity for your investors so they can sell their stock. On the flip side, IPOs can be expensive (the fees are usually 5-7% of the amount raised) and come with a lot of uncertainty. One of the biggest challenges with this method is that the IPO window can be open or closed, and is dependent on things out of your control.

If you do pick this method, a piece of advice I often tell founders is to act and operate like a public company well before you actually are one. More on this and IPOs at a later date as I’ll probably do a separate piece on it.

SPAC Merger: A Special Purpose Acquisition Company (SPAC) is another way for a company to go public. With a SPAC, a publicly traded company is created for the purpose of acquiring or merging with an existing private company. One benefit of going the SPAC route is that, for now, company projections are permitted to be shared with investors during a SPAC merger which allows investors insight into a company’s growth prospects. I say “for now” because the SEC is evaluating this and there is speculation that it will no longer be permissible in the future. Another advantage is that you can select your shareholders through the Private Investment in Public Equity (PIPE) process plus receive advice and “sponsorship” from the SPAC itself which can be helpful to the company. The cons of a SPAC process are that it can be difficult to get enough investor focus on the company once you’ve gone public in this way, and SPACs are currently out of favor with investors.

Direct Listing: In a direct listing, a private company converts into being publicly traded but doesn’t actually sell any shares. Companies that choose to go public using this method usually have different goals than those that use an IPO - specifically, they do not need to raise capital through the offering. Direct listings create liquidity for existing shareholders and are usually less expensive than an IPO, but companies miss out on the chance to raise money.

Lessons On Exits

No matter what route you end up taking, when preparing for an exit: Always aim to be on the radar and top of mind for acquirers, understand your cap table and the goals of your shareholders, utilize investment banks and investors as resources and hire great M&A lawyers.

Missed a part or looking to reread? Part 1: Ideation, Part 2: Naming Your Business, Part 3: How To Pitch, Part 4: Surviving A Downturn, Part 5: Minimum Viable Product, Part 6: Product-Market Fit, Part 7: Scaling or read them all.

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⚠️📲🌩️ Your Digital Lifeline: Top Tech Apps for Natural Disasters

Living in LA means being ready for anything—quakes, wildfires, crazy weather, you name it. Luckily, there’s a suite of tech apps designed to keep you informed, connected, and safe when disaster strikes. From real-time alerts to staying in touch with loved ones, these apps have you covered. Here’s the ultimate list to help you handle whatever chaos comes your way in LA County.

Get Real-Time Alerts

Image Source: MyRadar

FEMA App
  • What it does: Provides real-time alerts from the National Weather Service, along with shelter and disaster recovery info.
  • Key features: Weather alerts, shelter locator, and preparedness resources.
  • Available on:iOS | Android
MyRadar Weather Radar
  • What it does: Offers real-time, animated radar for tracking severe weather and storms.
  • Key features: Live radar, storm tracking, and severe weather alerts.
  • Available on:iOS | Android
Clime: NOAA Weather Radar
  • What it does: Delivers real-time radar and weather updates, with wildfire and flood tracking.
  • Key features: Customizable weather alerts, disaster tracking.
  • Available on:iOS | Android
American Red Cross Emergency App
  • What it does: Provides real-time alerts for over 35 types of emergencies, plus disaster preparedness tips.
  • Key features: Alerts, safety check-ins, and emergency tips.
  • Available on:iOS | Android
My Earthquake Alerts & Feed
  • What it does: Sends real-time earthquake alerts, with maps and detailed data.
  • Key features: Earthquake alerts, customizable notifications, detailed maps.
  • Available on:iOS | Android
Citizen
  • What it does: Delivers real-time alerts for emergencies, including natural disasters and crime near your location.
  • Key features: Safety alerts, live incident reports, and community updates.
  • Available on:iOS | Android

Stay Connected with Loved Ones

Image Source: Life360

While social media apps like Facebook and X provide real-time updates, additional tools can help with communication and location sharing, ensuring you stay connected and safe.

Nextdoor
  • What it does: Connects neighbors with real-time local updates on emergencies and community events.
  • Key features: Neighborhood alerts, local info, resource sharing.
  • Available on:iOS | Android
WhatsApp
  • What it does: Enables secure messaging, location sharing, and video/voice calls with family and friends.
  • Key features: End-to-end encryption, location sharing, voice/video calls.
  • Available on:iOS | Android
Zello Walkie Talkie
  • What it does: Turns your phone into a push-to-talk walkie-talkie for communication in low-signal areas.
  • Key features: Push-to-talk, works over Wi-Fi/data, group communication.
  • Available on:iOS | Android
Glympse – Share Your Location
  • What it does: Lets users share real-time locations with family and friends without needing an account.
  • Key features: Location sharing, ETA updates, private tracking.
  • Available on:iOS | Android
Life360
  • What it does: Tracks real-time location of family members and provides emergency SOS alerts.
  • Key features: Family location tracking, emergency alerts, crash detection.
  • Available on:iOS | Android

Stay Mobile

Image Source: PlugShare

For navigating road closures and traffic during disasters, Google Maps and Waze are essential tools that offer real-time updates and alternate routes. Along with these go-to options, there are additional apps that can help you stay mobile when it matters most.

GasBuddy
  • What it does: Locates nearby gas stations and provides real-time updates on fuel availability and prices.
  • Key features: Gas station locator, fuel prices, availability checks.
  • Available on:iOS | Android
PlugShare
  • What it does: Provides a comprehensive map of public EV charging stations worldwide. It offers real-time availability, pricing, user reviews, and photos of charging stations, helping you find the best nearby options.
  • Key features: Real-time station availability, detailed station info, user reviews, and trip planning.
  • Available on:iOS | Android

Traditional Preparedness Tips

In addition to these tech apps, it’s crucial to prepare for natural disasters with traditional methods:

  • Build a disaster kit: Gather essential supplies like food, water, first aid supplies, and a flashlight.
  • Develop an evacuation plan: Determine where you will go and how you will get there in case of an emergency.
  • Keep emergency contacts handy: Make a list of important phone numbers.

Maximize Battery Life and Data During Emergencies

During disasters, power outages and increased network traffic can affect your device's battery life and data usage. Consider the following:

  • Keep your devices charged: Use portable or solar-powered chargers to extend battery life.
  • Conserve data: Use Wi-Fi hotspots when available to avoid excessive data charges.

These apps are your go-to tools for staying informed, connected, and ready for anything in Los Angeles County. Whether you need real-time alerts, navigation assistance, or ways to keep in touch with loved ones, having these apps on hand can make all the difference when it matters most.

Download the dot.LA App

Luxurious Second Home Ownership without the Headache: How Pacaso is Changing the Landscape of Real Estate

🔦 Spotlight

Pacaso addresses the pain points of second home ownership, offering a luxurious, flexible, and financially sound alternative to traditional second homes and ultra-luxury hotels. Co-founded in 2020 by entrepreneur Austin Allison and former Zillow executive and prominent LA tech figure Spencer Rascoff, Pacaso, an unicorn startup, has redefined vacation home ownership with its unique co-ownership model. Rascoff's contributions to the LA tech scene extend beyond real estate; he also founded 75 & Sunny, an LA-based startup studio and venture fund, and co-founded dot.LA, an LA tech news and events company.

LA residents adore Pacaso for its lush vacation destinations that also make for smart investments. Pacaso offers everything from serene weekend getaways in Aspen to sophisticated escapes in Paris. Each residence, valued between $200k to over $2M for 1/8th, boasts meticulous design, high-end furnishings, and premium amenities. Unlike traditional second home ownership, which involves high costs, maintenance, and underutilization, or ultra-luxury hotels, which lack the personal touch and investment potential, Pacaso's co-ownership model offers a superior solution. Co-owners enjoy the benefits of a high-end vacation home without the full financial burden and hassle of sole ownership, making it a smarter and more flexible choice for discerning buyers.


Image Source: Pacaso

Cabo, Mexico

$822,000 (1/8th ownership)

5 bds. l 5 ba. l 4,969 sq ft

View Here


Image Source: Pacaso

Paris, France

$600,000 (1/8th ownership)

2 bds. l 2.5 ba. l 1,410 sq ft

View Here


Image Source: Pacaso

Malibu, California

$750,000 (1/8th ownership)

3 bds. l 3 ba. l 1,880 sq ft

View Here


Image Source: Pacaso

Park City, Utah

$755,000 (1/8th ownership)

4 bds. l 4.5 ba. l 2,584 sq ft

View Here

Head to Pacaso to learn more about its innovative co-ownership model that addresses the common challenges of second home ownership!


🤝 Venture Deals

LA Companies

  • Oak Essentials, the natural skincare brand founded by Jenni Kayne, has raised an undisclosed amount in Series A Funding from Silas Capital and Unilever Ventures. This investment will drive the brand’s expansion, focusing on product development, boosting marketing efforts, and expanding distribution channels. - learn more
  • Playhouse MD, an upcoming children’s healthcare platform that incorporates play to enhance health outcomes, has raised $4M in funding, according to a recent SEC filing. - learn more
  • FluidLogic, a high-performance hydration system provider, raised $15M in a Series A Extension led by Solyco Capital to support product development and innovation for adventure sports and outdoor endurance categories, with consumer products launching in early 2025. - learn more
  • Reflect Orbital, which uses in-space reflectors to direct sunlight to solar farms and large-scale lighting applications after sunset, has raised $6.5M in seed funding led by Sequoia Capital. The funding will help the company develop production vehicles and expand its team as it builds space-based energy infrastructure. - learn more

LA Venture Funds
  • Smash Capital led a €20M Series B round into Vilnius-based Ovoko, an e-commerce platform for buying and selling used car parts across Europe, marking Smash Capital's first investment in Lithuania. The funds will support Ovoko's product development, market expansion, and team growth as it aims to dominate the European market for second-hand automotive components. - learn more
  • M13 led a $9M Series A Funding Round for Zenlytic, the world’s first self-serve business intelligence platform. - learn more



LA Exits

  • Continuum Global Solutions’ healthcare vertical has been acquired by Everise, a customer service management company, enhancing Everise’s capabilities in pharmacy benefit management and expanding its growth prospects in the healthcare sector. - learn more
  • Radical Semiconductor, a company specializing in processing-in-memory technology, has been acquired by BTQ Technologies, a leader in post-quantum cryptography. This acquisition strengthens BTQ’s ability to secure data in the post-quantum era by integrating Radical Semiconductor's advanced technology portfolio. - learn more

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🎧The Essential Podcast Playlist for Entrepreneurs, Founders, Tech Pros, and VCs

Podcasts offer a front-row seat into the minds of the most successful entrepreneurs, VCs, and industry thought leaders. Whether you're scaling your startup, raising capital, or simply staying ahead of the game, these shows deliver invaluable insights, actionable lessons, and fresh inspiration. And let’s be honest, if you’re stuck in LA traffic (again), what better way to kill time than by learning from the best? Here’s a roundup of our top podcasts for entrepreneurs, founders, tech professionals, and VCs, complete with why they’re a must-listen.

Image Source: Apple Podcasts

The a16z Podcast

  • What it discusses: Covering a broad spectrum of topics like AI, blockchain, healthcare, and fintech, the podcast features interviews with founders, VCs, and tech leaders shaping the future.
  • Why you should listen: Get access to cutting-edge insights from one of the world’s most influential VC firms, keeping you ahead of emerging trends.
  • Why it’s great for entrepreneurs, founders, and VCs: This podcast brings cutting-edge insights from one of the top VC firms. Entrepreneurs will learn about emerging technologies, while VCs can stay ahead of investment trends shaping the future of tech.

Listen on: Spotify |Apple Podcasts



Image Source: Apple Podcasts

Acquired Podcast

  • What it discusses: Acquired breaks down the stories behind major tech acquisitions, IPOs, and exits, dissecting the strategies and market dynamics involved.
  • Why you should listen: Gain deep insights into how tech giants build and sell, making it essential for anyone aiming to understand successful exits.
  • Why it’s great for entrepreneurs, founders, and VCs: Perfect for founders looking to scale or position themselves for acquisition. VCs will benefit from the deep dives into the playbooks of successful exits, offering valuable lessons on company growth and market positioning.

Listen on: Spotify |Apple Podcasts



Image Source: Apple Podcasts

The All-In Podcast

  • What it discusses: From venture capital and tech trends to politics and economics, this podcast delivers unfiltered, candid commentary from high-profile industry insiders.
  • Why you should listen: It’s a no-holds-barred discussion on major issues affecting the tech industry, providing you with insider insights into the conversations that shape Silicon Valley.
  • Why it’s great for entrepreneurs, founders, and VCs: The candid, unfiltered conversations give listeners a peek into the decision-making processes of some of the biggest names in tech and VC. Entrepreneurs can gain valuable market insights, while investors will appreciate the high-level strategy discussions.

Listen on:Spotify | Apple Podcasts



Image Source: Apple Podcasts

BG2 Podcast

  • What it discusses: BG2 takes you through macroeconomic trends, the tech market, venture capital insights, and cutting-edge technologies like AI. It’s a high-level conversation on tech investing.
  • Why you should listen: Brad and Bill’s deep experience in tech investing, combined with their straightforward, no-nonsense style, makes this a must-listen for tech insiders.
  • Why it’s great for entrepreneurs, founders, and VCs: Get insider-level insights into the macro trends driving tech investments. Founders will learn how to navigate these trends, while VCs can better understand the shifting forces in the venture world.

Listen on: Spotify | Apple Podcasts



Image Source: Apple Podcasts

Crucible Moments Podcast

  • What it discusses: The podcast dives into the pivotal, career-defining moments of top leaders and entrepreneurs. Guests share personal stories of resilience, growth, and how they overcame adversity.
  • Why you should listen: It’s packed with inspirational stories of grit and perseverance, offering lessons that apply to both life and business.
  • Why it’s great for entrepreneurs, founders, and VCs: The podcast’s focus on personal and professional resilience makes it especially valuable for entrepreneurs who need inspiration during tough times, and VCs who want to understand how founders overcome adversity.

Listen on: Spotify | Apple Podcasts



Image Source: Apple Podcasts

Grit Podcast

  • What it discusses: In-depth interviews with founders, executives, and leaders who share stories of navigating challenges, building resilience, and finding success in tough times.
  • Why you should listen: If you want raw, real stories of leadership and determination, this podcast offers invaluable insights into what it takes to lead in business.
  • Why it’s great for entrepreneurs, founders, and VCs: The podcast’s focus on perseverance and leadership makes it a must-listen for founders facing challenges in their business. VCs will gain insights into the traits that make strong, resilient founders.

Listen on: Spotify | Apple Podcasts



Image Source: Apple Podcasts

The Twenty Minute VC

  • What it discusses: Featuring short, insightful interviews with top VCs and founders, this podcast covers topics ranging from securing funding to scaling startups.
  • Why you should listen: Perfect for busy professionals who want quick, actionable advice on navigating the venture capital world.
  • Why it’s great for entrepreneurs, founders, and VCs: For busy entrepreneurs, this podcast delivers quick, actionable advice on funding and scaling. VCs can stay connected to the latest trends through bite-sized interviews with industry leaders.

Listen on: Spotify |Apple Podcasts


These podcasts are packed with insights, inspiration, and actionable advice for anyone looking to grow, innovate, or level up. Whether you're building something new, looking for investment know-how, or just eager to learn from those who've been there, each show has something valuable to keep you moving forward on your journey.

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