Five Founders, Same Exit Value – Wildly Different Payouts

The price tag when Vinay Hiremouth sold his business was just under a billion dollars. Yet his take home was around 70 million, which is still a lot, but it's significantly less than a billion. On the other hand, Donald Span sold his business for about 12 million dollars, and his take home was about 12 million dollars. When we talk about exits or when they're in headlines, the big number that usually gets repeated is the sale price, because, well, it's the big number. But when you're trying to figure out what a founder actually took home, that can often be pretty misleading. Because there are a lot of things that can factor into the outcome, like co-founders and investors and deal structure and, well, life circumstances, lots of things. So for this video, we're going to do something quite interesting. We're going to take five exits from past money wise guests that are roughly the same size, about 30 million dollars, and we are going to compare what the founders actually took home, because, well, it's quite different. I'm Jackie Lyport, and this is Money wise, a podcast made for the community of founders over at Hampton. That's a community of high-net worth founders who are navigating everything that comes with the lifestyle, including finances, business growth, personal growth, relationships, everything. So if you're a founder doing at least three million in revenue, you should check it out. It's largely in real life as well, which is pretty cool and also really unique. So if you're looking to connect with real founders in real life, then check it out, join hampton.com. Okay, so here's the plan for this episode. Like I said, we have five founders who have had roughly the same exits of 30 million dollars, and we're going to break down one, what their actual exercise was, to what they actually sold, because it's not always the full business, and three, what they actually took home, and the factors that led to that and why they're all so different. First up is Aaron Galperin's exit that was worth 32.5 million dollars, and that was for his company that is now known as Jim Desk, which is a Jim management software, which he developed as a side project originally after he saw the need while doing Brazilian Jiu-Jitsu. The sale was for a majority stake in the company, which left him with some world of equity, almost 50% worth actually. So he's hoping that in five to six years, there will be another liquidity event that he can also take part in, and that also kind of means that he hasn't actually walked away from the business. I'm definitely not checked out. I'm learning a ton from all the people that we brought in for customer success, for sales, for marketing, and the new CEO, we're all like feeding off each other. I'm fine not being the main guy anymore, and more than fine, I actually relish it to a degree. I do see myself eventually reducing my involvement in the day-to-day of the company and focusing on other initiatives, but for now this is great. But I know what you're wondering, which is what did he actually get from that? And the answer is a lot. He says that of the 32.5 million, he actually got 30. We joined the tiny seat of accelerator, so they take 10%. I had 90%. So most of the equity, we rode over different amounts, so they actually rode over more equity from their share than me. So the final amount, how it breaks down, is a bit more complicated, but let's say 30 went to me. There was also a seller note involved, so I didn't get the full amount. Immediately, I gave them a seller note for a few years, which also bears interest. And there were a few other mechanisms there that deluded me to a degree like we needed to establish an option pool before the sale when I was still the majority stakeholder. But at the end of the day, the outcome was amazing and I was very happy with how it went down. So with the sellers now, it means that he didn't actually just get a straight $30 million check. This out is essentially, he has loaned them that money and they're going to pay it back to him over time with interest. Unfortunately, he didn't specify exactly how much of the sellers note was worth. However, he did break down his portfolio for us and we learned that there was about 25 million accounted for in investments. That does include past investments or other investments like crypto and just regular investments. But we can assume from that, even so, that there is a substantial amount that he got in cash. And of that cash, he went out of his way quite literally to make sure that he got the most of it. The idea was, this is back in 2019, we were living in California. California has a very high state income tax. And I know that at some point I would probably sell the company. If I moved directly to Japan from California, California would still be taxing. It's one of two states in the U.S. to do this. And it's very gravity. It's very hard to convince California, yeah, you actually moved and you're not coming back. You'll come back. They would make you pay back taxes. So we moved to a zero income state, Texas. We had a trip planned for April 2020 to come and scout out potential places to move to. And then the COVID started in March and Japan completely closed off to visitors. We ended up in a way getting stock for two and a half years in Austin. Okay, so to recap for this one, Aaron was a bootstrap founder, minimal outside investment. He sold a majority stake in his company, but kept nearly half the equity. He was taxed on the sale based on his residency in Austin. And there was a seller's note included in that deal. So not all cash, but all things considered pretty good. All right, money wise listeners, here's the deal. On this podcast, we talk about money and that's great. But the one thing that's even more important than money is your health. And a few years ago, I made a change. So I made a change to get fit. I wanted to get fit for vanity reasons. I wanted to look good, but I also wanted to feel awesome and hopefully live a long time. And the way that I made this change after years of struggling was I hired a coach and it changed my life. I went from being like 25% body fat to 13, sometimes 12% body fat. It changed my life. And that's why today's sponsor is Daily Body Coach. It's a premium online coaching service for ambitious entrepreneurs and executives looking to achieve their dream body and perform their best. Daily Body Coach is run by an exited software entrepreneur and hampered member. And in fact, a bunch of other hampered members are using Daily Body Coach. And they hook you up with a super personalized exercise and nutritional roadmap to help you achieve your goals. Their expert coaches are available seven days a week. So you can rest assured knowing that you have someone to hold you accountable every single day and to keep you on track. You can have it all. They offer a 100% money back guarantee within 30 days no questions asked. Make a change. Check them out. DailyBodyCoach.com/MoneyWise. Again, that's DailyBodyCoach.com/MoneyWise. Moving on, we have an exit from Scott Galloway. This one was worth $33 million. Yet he took a significantly less amount than Aaron did. So kind of early in his career, Scott had built a brand strategy company called Profit. And in 2003, he exited from that company. But yeah, he didn't get that much. And there's a couple reasons for that. When I was 26, I started a strategy firm. I grew to a couple hundred people. I sold it for $33 million. So, had some money, had to split it with my ex-wife. How much did you make from Profit? Well, I owned about 20 or 30% of the company and then after splitting it with my ex and then after taxes had $2 or $3 million, which felt like a lot of money at the time. How old at 32? Yeah, early 30s. So I thought that was a lot of money. That is a lot of money. But hey, you know Scott Galloway and that also means that you know that this was just an early learning experience for him. In 2017, he exited another one of his companies. This one called L2 and well, it was worth a lot more. He talked about it on my first million. What it sell for? $200 or $300 million? No, it sold for 158 million. But we'd only done one round of venture capital. So the common shareholders, you know, I was the largest equity owner. So the top, you know, between me and the top six employees, we probably own 70% of it. So that was, you know, that was a lot of money for me. I'd never had that kind of money before. I'd always done well, but I'd never had that kind of capital. Okay. So the recap got sold that first company for $33 million yet because he only owned about 20 to 30% of it. He had to split the profit with his ex-wife and then he had to pay taxes on it. That only ended up netting him about $2 to $3 million. Which is a great example of how a big headline number, $33 million, doesn't always mean that, yeah, that you made $33 million. Next up, we have an exit from Alex Formozzi and this one was worth about $31 million. And we have another gym company, which you might have guessed based on looking at him. Gym launch was a business that Alex built after running his own gyms for a while and launching other gyms and then eventually scaling that into a licensing model. At the time of the exit, he had built a company to evaluation of about $46 million and he sold 66% of it. And then like Aaron's deal, it was quite simple. So we sold two thirds, all cash for $31 and then we paid 20% on that. So what are that is? $20, 22. Already $20 million is a crazy amount of money. But what's crazier is how much he actually took out before he even exited. We had taken 42 million in distributions from gym launch before the sale. That means that his total after taxed hate home was actually more than the total exit deal. He added it up for us and it was roughly $45 to $50 million. And he kept, I mean, 30% of the company. So yeah, that worked out pretty well. This next one is a bit unique and that's for two reasons. One is that there are two of them. As in there are two people, we're talking about two brothers. There are two brothers. Chris and David Sinkins sold their business for $40 million. But this is the second thing that makes this entry unique. That's 40 million Canadian. So unfortunately less than what it seems. It's about $29 million USD, which is why it's on this list. It was almost half that though. Basically, just as the pandemic started was the first time the company that bought us approached us. And they said, hey, would you be interested? And they kind of-- they made an offer for us. We really need to give you $20 million to the business, which I wasn't really happy with. I thought that was a pretty low multiple and we're in software. The multiples are usually better than that. And so I wasn't pumped with that. And I said, you know what? Maybe later, not right now, Chris and I made that decision. And then jump ahead after we have this unbelievable pivot during the pandemic, we reach out to that company again, and say, hey, are you still interested? And they immediately said, cool. We'll double the offer. $40 million. We are reducing the earn out from a year and a half to three months. You get more direction over sort of how this is coming together. The good news for them is that this was all pretty straightforward. So cap table is easy enough to understand. Two people, Chris and David Singleton. That was it. We had no debt. Nothing. It was as simple as it gets. So the only real thing here was splitting it two ways. And that's what happened. I feel like pocket buzz and I look at my banking app and I go, you have an incoming deposit of $20 million. So I was like, whoa, hey, that's cool. I think as I was looking at my phone, I just got a text message from Chris. Is that, hey, did you get it? As for taxes in the province of Ontario, which is where they live, when a founder sells shares of a business, they typically have to pay a capital gains tax. And on that size, it'd be roughly 25% to 30%. So if we're saying that they got $20 million, then they would roughly have taken home mid teens. Let's say that's 15. We're looking at about 10 to 11 USD million, obviously. But speaking of taxes, there was actually a part of this deal that was taxed a little bit more aggressively. So during the initial sale of the company for the $40 million, we were working pretty closely with the private equity group. I basically just said to the guy right away. And actually, he's in our book. His name is Good Guy Gal. He's awesome. And I said to Gal, like, are you guys, you guys are planning on spending this company out and selling it probably within the next 12 months, right? And he's like, yes. And I was like, if we want to be part of that, as part of that full package, first thing, do we have to do this now? And we want to participate in that. And he said, yes, you have a two month window. There are some complexities for Canadian citizens to have equity in American companies. So what they did is they basically gave us, almost like, you could call it a promissary note. It was a legal instrument, at least, where basically, if you, if the company sells, then you will get this percentage of the overall value. It wasn't super lucrative. If the main deal was, as we said, 40 million, that was probably, I want to say, like, what was it, like, 400 grand each or something? Like, and we had to give half of it to the government because it was treated as earned income. So at our marginal tax rate, which is like 50%. So we saw 200 of those. It was like a little disappointing, I think. So to recap for this one, Chris and David sold their company for $40 million, we'll keep it in Canadians. So it's simple. For $40 million, and because they didn't have any big outside investors or any debt or anything crazy, they each just got $20 million. After tax, that's it. They just got it. So pretty good, actually. AI Search is quickly becoming one of the easiest ways for companies to get in front of customers right now. And the best way to take advantage of it is with mentions.so. It was built by a Hampton member, and it gives you one simple dashboard that shows you exactly how your company ranks inside LLMs like Chatchy PT. And more importantly, what you need to do to get Chatchy PT to recommend your product or service to potential customers. Every 10 years or so, a new growth channel is born. And for a small window of time, companies are able to get attention for cheap and drive massive growth. 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So go to Mensions.so right now and sign up with the discount code MoneyWise for 50% off your first month and a free AI search from the Mensions team who are behind the SEO campaigns of some of the biggest and fastest growing companies in tech like B.Hive, Kajabi, and American Express. That's Mensions.so code MoneyWise for 50% off your first month and a free search audit. Last up, we have Marshall Haas with an exit of $29.7 million. And that's back to USD. Yeah. What's interesting about this one is that it was actually purchased by another guest of the show Nick Huber. And the purchase was for a controlling stake, Marshall's controlling stake in the company. At the time, the company was valued at about $52 million. Here's what Marshall got from that sale. Deal was basically, I got about 18 million in cash at close. There's about 8.2 million of a seller note, but there's heavy interest on that. So I should see more than that every time. And if you others on this list, Marshall also held onto equity in the deal, which is something that he recommends. People think about an acquisition as a binary all or nothing kind of thing. That's not true at all. Everything's negotiable. So when I started considering selling, I talked to a lot of friends that had sold. And there's a thread of a few themes that I noticed, which is one, the guys that completely sold out the whole thing, they immediately go into worrying about, they have money coming in and now they're worried about making it last. And that's a different kind of anxiety that I don't want to have to deal with. And the other thing is just like, they don't have any action. They get really bored. Maybe they get depressed. And so I kind of optimized for a few things in the deal. One was to hang on to a considerable amount of equity still have cash flow where I wouldn't have to cut into my principle and live off of that. I can just let that compound and then live off of the cash flow that my equity that would hang on to would still spit off. I still get to see action. Like I'm on the board, I'm advising the company. I don't have a day to day role. The torch has been passed to Nick and the new ownership. But I can help when I'm needed. And then, of course, there's a life changing so money where you don't have to worry about working ever again, which is obviously the first motivation in selling. So I hung on to equity to basically optimize around all that. And I think that was very happy with doing it that way. To recap Marshall's deal, that's an exit of $29.7 million, $18 million in cash, another $8.2 in a seller's note, which is about $26 million in total ish, and then he still has equity. Another great deal. And with that, we have now looked at five different exits, all valued at about $30 million, but with vastly different founder take-homes. The lesson here, obviously, is that the headline number is only ever just that, the headline number, which is important to understand for a couple of reasons. And the first one being that if you are planning to exit someday, it's really vital that you know that these things can be really unique. You have to think about the different founders, the different types of structures and deals, different taxes, how much of the company is actually being sold. All of these things matter. So what you are going to expect is not really going to become super clear until you figure out exactly what your situation is. The second point here is a little bit more pointed. It's that scoreboard number. It's kind of bullshit. And I say that because it does seem that founders sometimes get caught up in the competition side of things, which is okay because competition is a great motivator. But a reality check is often also necessary. It can mess with your head if you start comparing yourself to somebody on Twitter or LinkedIn or something that is bragging about like an $80 million exit. And you don't know what they actually took home. You don't know how much of the business they actually owned if they had any debts, what the deal structure was like, if they actually got anything in cash, if it was deferred, all the investors, all that stuff. You don't really actually know. The big number is always going to lead, especially in those kinds of spaces. But what actually matters is how your finances were impacted, not the score. And again, just to highlight how dramatically different exits can be, Scott Galloway and Marshall Haas both exited for roughly the same amount yet Scott walked away with about two to three million and Marshall 18 million cash and then another 8.2 in a seller's note. And yes, Marshall had to pay some taxes on that that we didn't account for, but still, it's a very different sum. ♪ I swear you've got gold I've been running for ♪ ♪ Honey, I got hook up and won the job, bro ♪ Oh yeah, and at the beginning of this episode, I mentioned Veney Hirmath, whose company Loomswold for just under a billion dollars, yet he only walked away with about 70 million. Yet it could have been double, actually. And that's a pretty interesting story in itself. So if you want to hear that, click here. ♪ I swear you've got gold I've got ♪