Is it possible to have a pre-defined answer for the question - Till when do you stay with your startup or investment and when is it the right time to cash out?

The question arises in the context of the Groupon financing and valuation. The firm’s raised $130 million from Digital Sky Technologies (Facebook investors) at a valuation of $1.35B. I’m not sure if I should be using the words ‘raised’ because it’s actually a stock resale. The founders and employees are the ones cashing out.

According to Techcrunch, the Company makes almost $1million in profits per week! Estimated 2010 revenues $350 million. That’s a strong position to be in. However a cause for concern may be the competitors they have popping up all over the place that would be in a position to start offering locally tailored offerings.

Some of their peers who haven’t IPOed as yet but are in the same valuation range:

LinkedIn: $1.51B

Twitter: $1.64B

Zynga: $2.61B

And then there’s –

Facebook: $14.63B

The source is Sharepost where each individual company’s index value is determined from available data on recent transaction prices, current posts, research estimates and recent last round venture financing valuations – a single reference point.

Quite a few of these IPOs may be pending solely because of the status of the markets.

In the European context, I have heard from a number of investors that their preference is for a trade sale as compared to an IPO. I initially attributed the preference to the fact that typically in trade sales investors can exit the investment completely as compared to IPOs where some amount of holding has to continue for a certain period of time. Also there is a higher cost of an IPO due to financial regulations. But increasingly I’m beginning to realise that the concern is actually just the lack of depth and liquidity in European markets. An example, the amount of shares traded on AIM, which was supposed to be the answer for listing start-ups, per day is ~2 million shares. Compare this with the FTSE where the volume of transactions was ~1.6B.

So, going back to the first question – when to look at exiting the Company – let’s take a detailed look tomorrow.