John Hammerstein creates a social networking website that goes viral. Soon millions of people are using his service and John finds himself entertaining buyout offers and venture capital investments. Despite having no revenue and no profit, John has built an asset that has value to the marketplace. He receives a $640 million offer for his service from the web’s leading search engine. John declines, arguing that his business will be worth more money once he starts generating revenue. While this is true, it is a gamble.
After 18 months, John’s social networking service falls out of vogue, proving that the service was nothing more than a fad. The company becomes a bad party joke. In search of rich valuations on a declining property, John no longer receives investor or buyer interest. He realizes too late that he should have taken the $640 million and experienced a liquidation event. He eventually sells the company at a “fire-sale” price of $2.5 million to a private equity firm. His poor timing cost him more than $600 million.
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