#BusinessInvestment #VC #PrivateEquity #GrowthOpportunity
🤔 Considering selling 70% of your business to a VC/PE group? Here are some risks to consider:
– Possibility of losing control over key decisions
– Potential changes in company culture with new ownership
– Concerns about investor expectations and pressure to meet targets
However, here are some steps you can take to mitigate these risks:
– Conduct thorough due diligence on the group and their track record
– Negotiate a solid agreement that includes clear expectations and exit strategies
– Keep communication open with the investors to ensure alignment on goals
Have you faced a similar decision in your business? Share your experience and advice below! Let’s help each other navigate the world of VC/PE investments. 💡 #BusinessAdvisory #EntrepreneurInsights
Yeah, they will own your company. They can fire you, dillute your shares, sell the product and shut down the company. You’ll just end up screwed unless you have the best contract for the sale and your position within the company.
This is where you hire a lawyer to cover your ass and make sure that if you’re going to get screwed, you at least walk away with an acceptable payout.
Others here don’t know what they’re talking about. No VC is going to buy a business with the intent of shutting it down.
The main issue here is 6.5X EBITDA is way too cheap of a price, especially for a growing business.
Sell if you want to walk away or take a minority investment if you want to retain control.
They’re executing a buy-and-build aka roll up strategy where they have one platform company in their portfolio that acquires a number of other smaller and similar companies. They’ll rebrand everything under one umbrella and consolidate and outsource whatever expenses they can to increase their operating profit.
Their goal will be to sell the newly bundled company for a sum greater than its parts to a different private equity firm or corporate acquirer in <10 years when they need to return investor capital out of the fund they used to buy your company.
You need representation. Get a sell side investment bank to represent you and your interests. This is not a DIY moment.
I know a friend who sold out their private practice to a similar situation. They described it as the carrot and stick. They got an attractive up front amount but were in their words “sharecroppers” never meeting metrics and being paid $72k per year as physician who are specialists because the company took 40% off the top and constantly had reasons metrics weren’t met they are devastated and counting the days they can leave
John Oliver recently did a show about how venture capitalism works. It’s pretty short/entertaining…figured I would share : [https://www.youtube.com/watch?v=AiOUojVd6xQ](https://www.youtube.com/watch?v=AiOUojVd6xQ)
Be aware if you say no, you will be competing against a new competitor with deep pockets and increased scale as they buy up multiple competitors. You may not want the hassle of new bosses, but the alternative is new competitors whose goal is to buy out or price out competition.
It is a common tactic to take the business negative for 18-24 months by pricing below cost. Those who do not sell out early end up selling out at fire sale prices due to ongoing losses. Worse yet, they just go out of business.
What industry are you in?
I worked on lots of these types of deals. Happy to share advice. Could be great but could be terrible.
Do they have the money already or do they need to raise it still?
PE/VC Partnership questions aside, your company is starting to attract attention.
This likely won’t be the last offer, especially if your confidence is in fact warranted, and the company continues to grow. I would consider waiting until interest rates begin to drop. You will have more opportunities to leverage debt to grow your business. Or, alternatively, wait for additional offerings from firms with more buying power due to lower interest rates. In which case, your payout would be higher, and likely more in line with being “worth it”.
This is more than a yes/no to whether you should sell. If this firm is planning to build a conglomerate in your area, you have to either sell or be prepared to respond competitively. It’s worth engaging an experienced sell side group to look at this deal and to look for other deals or access to plenty of capital.
If you don’t sell your business challenges are going to change dramatically if this group buys and funds your competition. You’ll find you have a larger, well funded competitor that likely doesn’t care much about their staff, laying them off or paying poorly. Without the ability to invest in tech and efficiencies that they can fund it will be very hard to keep growing at all.