Should a Teenage Entrepreneur Sell Out To Facebook?

colinneagle writes "Andrew Mayhall is 19 years old and is running a server company, called Evtron, whose product has reportedly set the world record for data density (4.6 petabytes per server rack) and has begun attracting attention from investors. One of those interested parties is reportedly Facebook, with whom the young CEO claims to have had casual discussions about a potential acquisition/hire agreement (Facebook did not respond to a request for comment on the talks). He says the opportunity to speak with Facebook was simply one he couldn't pass up, and seems more impassioned by entrepreneurship. He speaks often of building his company into an EMC or NetApp, and could very well compete with them soon. But if an offer from Facebook ever comes, should he accept, or try to build something on his own?"

Comments

Retire at 20

[smprather]

Sell for $5mil and be done with earning a living. Relax and enjoy the rest of your life.

Re:Retire at 20

[MightyMartian]

Five million bucks won't keep you for life unless your very prudent.

Re:Retire at 20

[Baloroth]

That's what I'd do. Calculate first to make sure that after taxes what I got was enough to live moderately comfortably for the rest of my life, with some margin for error, then sell for that if I could. Too much risk when building a business to assume it'll work, especially given the size of the players in the field. If you can't sell for enough, well then try to build the company up.

The fact that he has a server business at 19 says he is pretty motivated, though, which means he probably won't sell. He'll try to build it to get more money or a constant stream, motivated types usually do. Might work out, might not.

Re:Retire at 20

[X0563511]

What planet you living on? Most people don't even make half that through their whole lives.

Re:Retire at 20

[WilliamGeorge]

Assuming you lost nearly half of that to taxes, 2.5 million invested at even a low 2% (in CDs, for example) return is $50k per year. I bet you could do much better than that if you invest wisely, and even if you didn't $50k is enough to live comfortably on if you don't have any debts. There would have been plenty in there to buy a home, nice car(s), etc - at that point simply living off the interest is certainly doable.

Re:Retire at 20

[bluefoxlucid]

77 years at $65,000/year. You can buy a house and a car in cash and avoid paying a huge chunk in interest. You may be able to avoid paying taxes on it since it's an asset changing hands, not sure, kind of doubt it (the business liquidating would work this way, but a CEO getting cash monies is going to pay income at around 30% just like everyone else). You could ask them to payroll you at and disburse a portion of the money into 401(k) at the maximum contribution per year until the account balance is enough for after you're retirement age, with the rest being a business transaction dispersal (not salary, so you don't pay things like social security)--that way you can later roll it into a private IRA, and when you're older and spending less you can take it from the IRA and pay in the lower tax bracket (pay less in taxes).

Re:Retire at 20

[jeffmeden]

Especially considering they took VC funding, which certainly came with some sort of strings attached. No way is your investor going to sit on the sideline while Facebook waves a 2x valuation in front of yo; no matter how much you "want" to be the next EMC your VCs will have their say.

Re:Retire at 20

[js33]

What planet you living on? Most people don't even make half that through their whole lives.

You still have to be very prudent with it if it's going to last you your whole life. Most people who win the lottery and take a lump sum are not prudent with it, and they end up broke in a few years. Just like some of the high-paid sports stars when they enter middle age.

Re:Retire at 20

[cayenne8]

Yeah...we call them stupid.

Get $5Million clear....invest it in a non-agressive manner, which could still get you like %5 interest annually.

As long as you don't buy leer jets...you could live easily on about $250K a year pretty readily.....

I know I could.

Re:Retire at 20

[Jawnn]

As long as you don't buy leer jets....

Are those the ones with the bigger windows? Are they more expensive than Citations or Gulfstreams or... Learjets?

Re:Retire at 20

[h4rr4r]

Why is it sad that you might have to pay for the civilization you enjoy?

Re:Retire at 20

[MMC Monster]

250K of gross income yearly is more than most people in the U.S. make. Unless there is rampant inflation, that's still likely to be true 20 years from now.

So, yeah, he can coast for the rest of his life. Good for him.

Re:Retire at 20

[WhiplashII]

If he started a company in his teens, I doubt he wants to relax the rest of his life...

He should sell. The reason small companies sell to large companies is to decrease concentration of risk for their owners. He, as an owner of a small company, needs to deconcentrate his risk. He will have another company he wants to work on - he probably already has some ideas. It is far easier to do that after selling your first company, and far harder to do that after missing the only opportunity to sell.

The simple fact is a cash out event gives you great options for your future work. If you don't sell, there is a high risk that the company will fail before you can personally cash out - this is true of all start-ups.

Re:Retire at 20

[interkin3tic]

Learjets? I could be wrong, but I think those are jets you give to your daughters before going crazy.

Re:Retire at 20

[h4rr4r]

Then you don't need $50k for decades, your early death will allow you to spend more of that money each year.

Re:Retire at 20

[Compaqt]

The problem is they aren't necessarily going to pay cash. They like to give you a bunch of stock options, restricted so that you'll have to work for them for 5 years for the stock to vest.

Meanwhile Facebook stock is going down, down, down.

Re:Retire at 20

[afidel]

$5M at 7% ARR with 3.5% inflation throws off about $185k per year of todays dollars assuming a 70 year drawdown period. If you can't live on $185k per year then you're a rich entitled idiot.

Re:Retire at 20

[geekoid]

Yes, the pick the peopel who did the worse and try to pain all winners that way.

Money doesn't change people, it just gives people the opportunity to be who they really are.

Re:Retire at 20

[obarel]

It's really important not to eat into your principal, because you want to make sure that you still have $5 million in the bank when you're dead.

Re:Retire at 20

[afidel]

The long term ARR for the NYSE is 8%, the current 10 year average is an abnormality at 6.4% ARR which is close enough to 7% to let the point stand.

Re:Retire at 20

[DriedClexler]

Only a tiny portion goes to the civilization part, the rest goes to the uncivilized political infighting over who gets the free loot.

Re:Retire at 20

[WhiplashII]

Actually, I pretty much disagree entirely with that analysis...

The question is not "sell low" or "sell high" - you do not know the future, so that fact that it went up is not available to you before the decision. The question is are you getting enough that your risk is significantly decreased.

For example, if your company is generating free cash flows of $2M, you will usually get a valuation of $10M. That is the market rate for a startup that's breaking out. (It can change based on other factors, of course, but that is the starting point.) As a public company, that $2M is worth about $30M. You might look at that difference and claim "unfairness", but it is the price difference between concentrated risk and unconcentrated risk. To put it simply, if that wasn't the price difference in risk then most deals would not be made - either the startup would refuse to sell or the large company would refuse to buy.

Honestly, if this is your first company you are going to think that any price isn't fair. And when you don't accept the price, you'll be horrified when the company loses its value a little later. And then next time, you'll understand the price difference and you'll sell.

But the important thing is to keep building companies - I've started quite a few, and there is no job like it!

Re:Retire at 20

[drsmithy]

Maybe I'm an entitled idiot but in New York or Los Angeles it's not that easy living on $185k a year. It sounds nuts but with killer mortgage and kids somehow it disappears even though I shop at Costco and Walmart...???

Median household income in Manhattan is about $65k. $185k/yr is nearly three times that amount.

If you can't live comfortably on three times the median income, you're an entitled idiot.

Is Facebook starting to lose ground?

[Andy Prough]

I asked my teenage daughter (the demographic that drives all technology spending) if she or her friends use Facebook anymore. She said almost never - they use Instagram to share pictures, and some other services I can't remember right this second. Is Facebook in danger of falling off the MySpace cliff?

Re:Is Facebook starting to lose ground?

[Doomstalk]

Facebook owns Instagram, so it seems unlikely.

Re:Is Facebook starting to lose ground?

[Andy Prough]

Facebook owns Instagram, so it seems unlikely.

Oh, I didn't know that. That's why I come here, to be told what an idiot I am. Very useful info.

Re:Is Facebook starting to lose ground?

[Anonymous Coward]

That's why I come here, to be told what an idiot I am.

You should talk with your daughter more often.

Re:Is Facebook starting to lose ground?

[somersault]

Your open ended questioning stuff makes you sound like a shill, too. Though Slashdot is already pretty anti-Facebook, and any remaining users that are also on Facebook will make up a tiny percentage of actual FB users. Plus, Slashdotters aren't exactly as easily led as your average internet user. So yeah, the whole idea of trying to imply Facebook is dying would be rather wasted here.

And to answer the open ended question - no Facebook isn't headed off a cliff quite yet, because there is nothing better yet which does all of what FB does. There are individual services which do some things better - but there always have been. And for whatever it's worth: I never got into MySpace at all, but I do use Facebook regularly.

Re:Is Facebook starting to lose ground?

[Belial6]

If he is smart enough to ask her opinion in the first place AND actually listen, perhaps his daughter isn't so quick to call him an idiot. It seems to me that he is asking the right people at the right questions.

No

[Anonymous Coward]

Don't sell...license.

Re:No

[j00r0m4nc3r]

Unless the two in the bush are dead or infected

He should sell out

[Ukab the Great]

And have plenty of beer money for when he goes to college.

A lot of assumptions there

[multicoregeneral]

If one hypothetical things happens, should you do some other hypothetical thing? Sure. Why not.

Yes but moot point now.

[xxxJonBoyxxx]

>> if an offer from Facebook ever comes, should he accept?

Yes, but...

>> One of those interested parties is reportedly Facebook, with whom the young CEO claims to have had casual discussions about a potential acquisition/hire agreement

...I wouldn't count on that now. Yeesh.

Re:Yes but moot point now.

[funkify]

This. Some people have to go open their big fat mouths about everything.

Sell!

[DreadfulGrape]

Sell, absolutely. Then take the money and build something even bigger.

Re:Sell!

[bhlowe]

Yeah, companies go up and down quickly in tech. If you have an opportunity to get your technology into the hands of pros who will pay you big money.. its a no brainer.. With cash in the bank, you'll be able to start a new business, relax about meeting payroll, and take time off to finish college or travel abroad.

Re:Sell!

[wisnoskij]

Personally, I would put enough away to live on and use the free time that gives you to make something bigger.
Not turn around and spend all your earnings on a risky venture.

Yes.

[cpotoso]

The answer is yes. There is nothing magical about putting off the shelf items densely packed. Once somebody sees it, it is not hard to reproduce. So, yes, sell.

Re:Yes.

[funwithBSD]

And when it comes to storage, it is the management software, not the hardware that is tricky.

30PB is a lot of data... Managing it is a big headache.

Tracking down how much is allocated and actually used, who owns what and how it is zoned on the fabric takes sophisticated software.

I work for a DC hosting company and when we take over operations from a non IT company and start accounting for storage, the amount of space that is mis-allocated or just plain orphaned runs about 20%?

Or more... It is amazing how much allocated but un-mounted storage we find.

What kind of person is he?

[dmomo]

If he's ambitious and hungry for innovation, could he not use the money from Facebook to bootstrap something bigger? If it's just dumb luck, perhaps if his product is of any real value, and he doesn't sell, the big players might just jump in and roll their own faster, cheaper solution. Competing with them will be a different sort of job. Moving forward on his own may involve more work with Lawyers than with Technology and Innovation. So, the answer depends what kind of person he is. Some people are driven by the business end of things. Others want to innovate. Rarely is someone good at both.

WTF ?!?!? You're asking us ..

[OzPeter]

as to what the best business strategy should be between two 3rd party companies?
 
You might as well ask what I think your neighbor should give their kids for Christmas. Go ahead .. use that as a Slashdot poll.

Obviously we have not yet reached the bottom of the Slashdot story barrel.

Slashdot and good advice...

[jeffmeden]

Let's say this is the best case scenario, that you actually figured out something in your garage, with little to no experience in other high density storage applications, that EMC, NetApp, and the other major players simply couldn't come up with despite having hundreds (thousands?) of very talented engineers. If you manage to get a patent on it (you don't have one yet... interesting) then just license the rights nonexclusively. But then again, hopefully you have at least one lawyer around to give you the same advice.

Worst case scenario, is you just "invented" something that is already patented (this is highly likely) and your visibility just isn't high enough to have the hellhounds attack yet. In this case, again, a lawyer is your friend.

Re:Slashdot and good advice...

[Maximum Prophet]

Exactly.

I'm sure EMC, NetApp, and the other major players like the guys who build the disk drives themselves have stuff in their lab that's 10x the capacity of what they sell. In the lab it's still proving itself, and some of that lab stuff isn't going to work out. They'll only take the stuff out of their lab when competitive pressure forces them to.

I read that Google is the world's 7th largest computer server manufacturer, but they don't' sell *any* servers, they use all they make themselves. Google got where it is by cramming lots of COTS stuff together, customizing only when it makes sense.

The general slashdot advice seems to be good. Take the first large, real, offer that you get from Facebook or anyone, because there may not be a second.

Sell, because you haven't done anything yet.

[mveloso]

Building cool hardware is great. Selling cool hardware is totally different.

If someone wants to buy you at a point before you sell, do it. The summary says you'll compete with EMC or NetApp. You won't. You're able to do what you're doing because you have time to think about the product. Someone else in the field can look at what you're doing and figure it out quickly. Someone like the people at backblaze.

Can you offer 24x7 support? How is your manageability and maintenance? Recovery? How are you going to make the thing? Those are basic questions. Are you going to sell direct or via channels? blah blah blah.

OTOH, if you get eaten by facebook you get to help them design and build their systems, which is great if that's what you want to do. The thing is, your story is what's getting you the PR, not your product. Leverage off that PR as much as you can, since it's all you've got right now.

Re:Sell, because you haven't done anything yet.

[jeffmeden]

Can you offer 24x7 support? How is your manageability and maintenance? Recovery? How are you going to make the thing? Those are basic questions. Are you going to sell direct or via channels? blah blah blah.

This is the first thing I thought of, too. The only thing killing storage density today is serviceability. Everyone wants a box that offers per-disk replacement. This is a different model entirely; most likely they would just write off the failed disks and at some point as the chassis ages just throw the whole thing away. Going to work for Facebook to make this work in their model is a great path. Trying to do it on your own, to sell to the masses and put up with the constant headaches of support, is going to make you go nuts by the time you're 30.

Hypothetical or did he just blow NDA?

[retroworks]

If Facebook was actually serious, he would have gotten a Non-Disclosure Agreement by now, as FB has way too much exposure to insider trading shenanigan penalties. I assume if he's seeking advice on slashdot, he has either already blown it or is prematurely bragging to a girlfriend.

If you have to ask Slashdot, then yes.

[electrosoccertux]

You should know the answer before you ask the question if you're really entrepreneur quality.

He's going to lose control anyway

[hawguy]

If he doesn't sell to Facebook, then he'll give up control to a VC firm.

If he really wants to compete in the enterprise storage market, he'll need lots of money, so he'll be giving large parts of his company to some VC (or multiple VCs).

Hardware storage density is only part of the answer, no one buys Netapp or EMC for the raw price per GB or how many disks they can fit into a rack shelf, they buy for the hardware resiliency and software stack that surrounds the disks. So he's got a lot of work ahead of him to prove that it really is a viable solution.

There's probably not a whole lot of overlap between people that need 5PB of storage in a rack, and people that are willing to use an underfunded 19 year old's product to store the data. He's going to need serious funding to make any inroads into the increasingly crowded dense storage space.

If I were him, I'd take whatever money FB is offering and retire.

Sell!

[axehind]

A 19 year old doesnt know anything about running a business. Also it is likely someone will beat the density in the near future, so sell if you get a fair offer.

Whatever he does...

[Mike Buddha]

... he shouldn't take business advice from Slashdot. It's filled with ankle-biters and mavens who are sure they've got all the answers despite not having ever been close to being in a similar predicament.

Perspective on licensing

[xxxJonBoyxxx]

>> Don't sell...license.

OK, some perspective from the "buyer" side. When I encounter a company with technology I want, I almost always attempt to LICENSE the technology, not buy the company. Why? Because I can usually get what I want out of the company cheaper and with less hassle than if I bought the company. (Think retaining/motivating employees, etc. too.) Plus, if I become a significant stream of revenue to that company, I can often dictate what the company does with the majority of its development resources if I'm needy enough; in effect, I can get that companies' other customers subsidize my desires.

I know an advertorial when I see one

[broknstrngz]

And this is one.

Re:Take the money and run - not retire, though.

[cayenne8]

That's too young to retire. For one he doesn't seem like the guy who wold sit back. He'll be in tech somehow until he dies.

I dunno...if he's smart, he'll realize that if he gets fiscally set up for life, where he no longer has to worry about spending any time the rest of his life 'earning a living'.....he can devote all his time to doing what he likes.

If that includes future tech creation and motivation, what better way to do that full time, than to NOT have to waste time earning a living...?

Re:Build your own

[gstoddart]

Do you want to be a bitch to facebook

It depends entirely on how many zeroes they put on that cheque.

For high anything over $50 mil ... I'd fuck Zuckerburg at the Super Bowl half time show. Anything over $100 mil, and he can bring a friend. ;-)

Sell, but for different reasons

[Zontar_Thing_From_Ve]

He should consider selling but for different reasons than others have suggested.

1. I work for what was once a very successful start up that a Fortune 500 company acquired, so I am an employee of the Fortune 500 company. I was not hired by the start up until near the time that the acquisition happened, so I was not around in the early days. However, one of the things I saw from the early employees was this supreme arrogance that the company was successful only because they were all geniuses and that everything they did afterward could not possibly end in failure. I know that a few of the founders, all of whom left after the company was sold, have tried to start new businesses and none of them have yet taken off. One or two of them might, but the jury is out. My point is that it's actually hard to build a successful business, but everyone who does it fails to recognize that they beat the odds and they become convinced that they simply cannot ever fail. There are a few guys who really can turn every business they start into a success, but most can't repeat the success.
2. It's really hard to compete with bigger, older companies. Mayhall may truly have the best product, but he may be limited in sales because some clients may prefer to go with bigger, more established companies just in case. The start up I briefly worked for was sold because the owners had basically grown the business as far as they could on their own and they needed a larger partner with more and (truth be told) better sales people if it was going to grow. After the buyout of our company, our sales went through the roof and we grew at a rate we could never have achieved on our own.
3. The insight he had to offer more density may be patented (I don't know), but someone else will eventually come up with the same idea even if they never see his patent. They might make it just different enough to get their own patent on it. Or they may simply willingly infringe it, gambling that they can win a court battle or that Mayhall won't have the money to stick it out in a protracted fight.
4. There are companies that didn't sell when they could have and they lost market share over things they couldn't see happening when they were at the top. There's always a risk.
5. Mayhall may well have the arrogance that youth has (ie. Zuckerberg) that everybody older than him is an idiot and only young people have any idea what they are doing and he can beat his competition because they are old and stupid. That may actually end up being true, but it probably isn't going to. He could always prove incompetent as the head of a larger company and make a lot of bad decisions. Jim Balsillie was king of the world for a while and now he's just the guy who ran RIM into the ground. Jim wasn't as young as Mayhall, but he certainly had the same "I simply cannot fail" attitude.

You have two options. Both involve selling.

[Revotron]

http://evtron.com/

Based on what I see on their website and how much I've heard about the company (Answer: Nothing and nothing) an offer from Facebook would be a miracle.

I have a feeling this high-density storage idea is just a creative way to stick as many drives in a rack as possible, which means someone will easily beat it in no time because, face it, advances by the big storage companies means drives are getting more and more dense every day. Also, it won't be long before someone else comes along with an even-more-efficient arrangement of hard disks in a custom-built chassis in a 48U rack.

If Facebook wants to buy what's on your drawing board, go for it. You have two viable options at this point:

1. Sell for as much as you possibly can. Get every penny out of it that they're willing to give. Then take that money, hire people smarter than you, and make something even better than what you sold Facebook.

Or,

2. Negotiate a payoff for your idea, and employment. Go work for Facebook and help them bring your dream to life. You'll still get money for your idea but you'll make it come alive through their bankroll. They'll hire on very bright people and bring in storage experts to tweak things. I know it might suck to watch them come in and change your pet project, but watch and learn. You'll learn from these people, see flaws you never took into account, get to know them, work with them, and (forgive the schmoozing business term) network with them. If you choose this option you'll have a few good things going for you:

a. A job. You didn't finish high school - if you don't start another business, there's sadly not much else you can do.
b. Solid work experience for a Silicon Valley company. This will pay off in the long run.
c. Relationships with people in the industry. It's invaluable.
c. Knowledge. You'll learn things you don't yet know about the storage industry and the tech behind it.

These are second-degree hypotheticals though. If you're talking about it publicly that means you haven't signed an NDA, which means they haven't made you an offer yet. Don't count your chickens before they hatch, but always look a few steps ahead.

Re:Fit 120 HDDs in 4U enclosure?

[rgbrenner]

It is 120 3.5" drives.. but..

the enclosure is 45" deep.

http://forwardthinking.pcmag.com/none/303516-demo-fall-2012-infrastructure-products

I'm sure you won't have a hard time figuring it out now.

Unanswered questions

[lga]

This product doesn't quite add up.
I've watched the video of their presentation at DEMO and the concept is basically a 4U box containing 120 hard drives and has three fans on the front. They claim it takes 45% less power, 66% less space and 38% less heat output.

I can see that requiring less power for cooling would reduce the overall power consumption, but can't see how pumping the same heat out of three fans would achieve that. They also don't say how these drives are interfaced. Presumably there is some kind of controller in the box since there aren't 120 SAS connections coming out of it, but somewhere you have to have a server in charge of those disks and a connection with enough bandwidth to run them all. And then we need to know if there is any RAID intelligence in the boxes or if the server gets them as JBOD.

Is the data density really that remarkable?

[pikine]

Let's do a little math here.

• Largest capacity 3.5" hard disk on market today is 4TB. It takes 4.6PB / 4TB = 4600TB / 4TB = 1150 hard disks to achieve this.
• Suppose a rack is 48U, 19" wide and 42" deep. 1U is 1.75" height. This gives 67032 cubic inch. Each hard drive is allowed 67032 cubic inch / 1150 = 58 cubic inch.
• A typical 3.5" hard drive is 4" x 1" x 5.75" = 23 cubic inch.

This does leave a comfortable amount of space for ventilation, wiring, and RAID controller. You basically build a whole rack full of hard drives.

But this is extremely impractical. You'll need a fast interconnect between other computing node racks and this storage rack because all storage access to raw data has to go through this pipe. On the other hand, if you basically keep it one or two hard drive per computing node, then raw data never needs to travel across the interconnect, and you get better locality as result.

Re:You have two options. Both involve selling.

[rgbrenner]

there's no "magical feat".. the enclosure is 45" deep:
http://forwardthinking.pcmag.com/none/303516-demo-fall-2012-infrastructure-products

All he supposedly came up with is an "innovative" way to cool it... which will be copied (in an ever-so-slightly different way to avoid the patent) in 5 4 3 2 1...