This week I chatted with a founder about his fundraise and his longer-term goal. He told me his goal is to build and sell his company. I thought, his company will be built to sell. I asked him a few clarifying questions and learned that his true goal is to have a large enough cash position that he can pursue his other passions and ideas.

Selling a company isn’t a guarantee. A lot of external factors determine if (1) a transaction is possible and (2) if it’s financially feasible to sell the company.

Since 1981, we’ve been in an environment heavy in acquisitions, and it’s all some founders know. However, I’d argue that this is largely a function of interest rates on 10-year U.S. Treasuries, which dropped from almost 16% to 0.5% in 2020 and have since risen to about 4.25% today. Said differently, interest rates were falling, or historically low, for roughly 40 years, which contributed to more borrowing, which led to more acquisitions. People borrowed money, and some of them bought companies with it.

I can’t predict what rates will do going forward, but 40 more years of declining rates seems highly unlikely.

That having been said, I believe that building a company that’s self-sustaining and that generates positive cash flow is a more effective strategy. If customers love the product and it’s generating cash flow, the owner has several options. He can keep the company and reinvest the profits inside or outside the company. If the environment is right for acquisitions, the company likely is more attractive and can command a premium from a buyer because the owner doesn’t “need” to sell.

When you build a company focused on creating sustainable value for customers and cash flow for the long term, your decision process is a lot different. You’re more likely to build something that can withstand whatever external factors the world throws at it. If you build something to sell, you can do everything “right” but still fail to sell simply because outside factors, such as interest rates, create poor market conditions and timing.