Don't sell your company before you've built it.

Stay independent or plan an exit? The risks of selling out too early.

Paul J.


Inside Scoop

We’ve grown over the past ten years without taking a dime from investors.

Here’s our two-step secret:

1) We make more money than we spend.

2) We keep doing that.

Of course, that’s nothing special. Most businesses work that way.

That is unless we’re talking “startups.” Since the internet frontier opened in the 90s, there’s been a gold rush on staking claims in tech that might disrupt entire industries — even change the world.

As an internet company, most people assume Pathwright is investor-backed. But we chose a different path: independence. It isn’t for everyone or every kind of product. But a decade in, we’re happy with where it’s led us.

What’s your exit strategy?

In 2011, Mark and I were busy building a beta version of Pathwright in a spare bedroom. It didn’t take long for “seed funding” to come up. Many thoughtful, qualified people pushed us to raise money or risk losing to more well-funded players in a hot edtech market. We received the first of many investment offers pre-launch and were cautiously curious.

But then, every conversation with an investor ended on the same note: our “exit strategy.” What timeline would we, the founders, be comfortable selling increasingly more shares to investors until we exit with a big payday?

Mark and I wanted creative freedom to create an innovative tool for teachers — Talking about exit plans felt like bringing up a prenup on a first date!

But an exit strategy is the entry point for a venture-backed company.

Of course, there are excellent and lousy versions of both kinds of companies. But differing priorities trend towards divergent paths in the long run:

Venture companies race to the exit (or else).

A venture company’s formula for success is to:

Sell shares of ownership to future investors at a profit.

A typical venture-backed startup is a financial instrument first, product second. Money doesn’t play a supporting role — money is the point.

Success means exiting with a sale to a larger company or the public as an IPO at a 100X return.

Of course, accomplishing that is no small feat: it takes talent, grit, and sheer luck to accomplish an almost impossible juggling act: competing in the market for a runaway product success while also competing for worthwhile investors’ buy-in.

It’s no wonder more than 9 out of 10 startups fail. Sadly, when they do, the exit strategy triggers a sell-off to the highest bidder or selling off the company for scrap to prevent potential further loss. Again, money is in the driver’s seat. It doesn’t matter how many people genuinely loved the product if the exit ROI targets aren’t looking good enough.

This intense pressure to stay on track (or else ) often evolves into filtering critical decisions through increasingly shorter-term ROI calculations as the investment runway runs out: Scrambling to hire a bunch of okay fits instead of waiting for great fits; Pump and dump sales techniques to hit the next quarter’s numbers and jack up the business valuation; Pivoting away from interesting, promising innovations that won’t move the dials soon enough.

Few manage to smoothly exit this treacherous highway — fewer still with souls intact. The best-case scenario for most is that the original owners exit owning a lot more money — but no longer owning the destiny of the company they poured so much into.

Independent companies grow at an organic pace.

The formula for making an independent company work is simpler — but challenging enough:

Provide value to customers at a profit.

Starting from scratch forces independents to prioritize product value over everything else. And to keep doing it — there are no shortcuts or fallbacks.

Money plays a supporting role — it validates and fuels improvements to the product.

It means a smaller team, feature set, and promotional spend — smaller (and slower) everything.

But there’s a hidden benefit: a more natural pressure-to-growth ratio. In most of life, we grow in direct proportion to the tiny stressors we respond to: an extra rep, a thoughtful reply, a dollar saved — each increment yields a little more to build on later.

By necessity, independent companies make smaller, incremental bets in response to pressing customer needs. They don’t have the luxury of swinging for the fences or punting sustainable business models down the road. It’s a slower path — but more natural and satisfying in the long run.

And here’s the best part: As profit grows to fuel more possibilities, the company can reinvest it on its own terms and timeline. No outside investor need sign-off. And we get to keep building for as long as we’d like in the way we like.

We still don’t have an exit strategy.

For us, saying “no” to taking a venture-backed path ten years ago and many times since came to one question: do we value independence more than ROI?

We admire entrepreneurs who manage to create and sell multiple companies and generate a lot of money for many people — but that’s not us.

But independence gives us the flexibility to make daily decisions based on what we’re motivated to create. Only our customers can tell us if we’re on the right path (and better believe you do!). Best of all: we can keep building as long as we stay on the path — and we’re in it for the long haul.


(1) There are notable exceptions, of course. Apple is perhaps the most successful product company of all time and was funded with venture capital. Naturally, many investors (including those pitching us) often use them as an example. But it’s not quite an Apple to apples comparison: Apple had hard costs, rare talent acquisition, and other barriers to entry that most software startups don’t approach. They required investment and used it to fund innovation directly, not just to fund rapid expansion. Further, under Steve Jobs, Apple remained notoriously product first — investor second. Apple is a great case to consider, as long as we keep in mind that they’re an exception to many of the rules.

Using Pathwright is dead simple and doesn’t cost a thing until you’re ready to launch a path.
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