Selling Out Can Be Smart

Yglesias is pleased by Snapchat’s refusal to sell to Facebook for $3 billion:

The company’s founders and investors may or may not be making a terrible mistake. But from the sidelines, I think one should almost always root against the acquisition exit. It’s boring. It’s lame. The bet when you turn down $3 billion is that there’s some chance that in the future your company will be worth $30 billion or $300 billion and you want to reach for those stars and dare to dream.

Joshua Gans calls this “jaw droppingly bad analysis”:

Ultimately, while it is easy to pull apart these arguments, the actual real history of entrepreneurial firms tells us that most of them succeed by cooperating with established firms rather than competing with them as Yglesias is cheering here. As a person responsible for much of that research (see herehere,here and here to name but a few), let me tell you that the struggle in getting acquired is getting a big payout from stronger incumbents; something Snapchat, like Groupon before them, seem to have overcome. To be sure, there are companies like Google and Dropbox (who each turned down a small amount), that end up doing quite well. But they are the exceptions rather than the rule. Snapchat may prove me wrong but I have to say, kids, you should have taken the money.