A lot of entrepreneurs have a goal of selling their company. It makes sense when you think about it. They often take below-market or no salary for years. During the seven to ten years or so that it takes to scale a company, most of them transition to different life stages (marriage, family, home purchase). These and other factors can put immense pressure on an entrepreneur over a long period of time. The pressure can motivate them to carry on through tough times. It can also be a factor in setting a goal to sell.
When I talk with entrepreneurs, I like to understand the “why” behind their desire to sell in X years. With some digging, I often learn that what they really want is to derisk their financial situation. They decide to sell because it’s the only option they know of to get some liquidity. I define derisking as removing enough financial pressure to be comfortable—not to be in a position where they can do whatever they want without having to work. Maybe their home and their children’s educations are paid for and they have some savings. They’re not flying around in private jets to their multiple homes.
There are lots of options that allow entrepreneurs to derisk without selling the entire company. Secondary share purchases are one tool. Raising a round of capital through investors buying shares from employees or executives is common. Private equity and venture capitalists do these deals regularly. The founders can maintain a controlling majority ownership and continue to execute on their vision for the company. One founder friend likes this route because it “takes the edge off.” I know another founder who took this route so he could “swing for the fences” without worrying about his family. Because he knew that his family was comfortable, he felt good about growing more aggressively and making some bold bets.
If you’re trying to build a large company, know that there are ways to derisk during the journey that don’t require selling your company. Also, be mindful that most investors understand the desire for some security once enough scale is reached. Most will want to work with someone who’s focused on building something big, not ejecting at the first offer to sell the entire company.