Michael Whelchel

May 30, 2018

Sell Without Selling Out: 9 Pieces of Wisdom

True Small Giants companies and leaders approach business differently. And that approach includes growth and exits. In this blog, Michael Whelchel of Big Path Capital shares key pieces of wisdom to keep in mind when weighing your exit strategy options as a purpose-driven leader.

To Sell or Not to Sell: 9 Pieces of Wisdom

1. Remain true to your core values and the company’s mission. 

  • Make sure your values and mission are aligned among founders, management, board, and current investors.
  • Have your values and mission at the core of everything you do.
  • Align investment decisions with your value and mission.
  • Consider how to protect the mission if selling to a large strategic.

2. Know (and communicate) what’s important to you.

  • Clearly define what success looks like: Be open, honest, and direct about your objectives and motivations and expect the same of prospective partners / investors.
  • Be realistic, but also hold firm on the issues that you view as fundamental.
  • Know if you are willing to take a discount (and how much) on valuation as a founder or any stakeholder for a capital partner that is more mission- and vision-aligned or if you want to retain majority control or other priorities that may effect valuation.
  • How engaged do you want to be as a founder? Know if you are happy to hand over the baton or if you want to continue to drive the business for the foreseeable future.

3. Find a mission-aligned deal team. 
  • Have an intermediary that is aligned with your values to help you navigate the process and choose the best aligned potential investors.
  • Ensure there is open, frequent communication and set expectations early to avoid misalignment on key issues later in the process.
  • Find someone that has strong relationships in the mission-driven investor universe, across various investment size and criteria.

4. Know your options – and give yourself options to choose from if you can. 
  • Every situation is unique and thus requires a unique solution.
  • Understand what it would mean from a business perspective to remain independent, create a private market for stock, get an investment from an impact fund, PE, or holding company, or sell to a strategic buyer.
  • Seek counsel from someone who has done similar deals and that you know can offer impartial advice.
  • Take your time, don’t close off options unless you have to or want to.

5. Make sure the type of capital must be aligned with stage of the company.
  • Timing considerations and eventual exit / liquidity plans need to be in sync.
  • Know how the type and source of capital taken early on in your company’s life cycle could potentially constrain choices in the long term.
  • Consider minority investments to get started with new partners.
  • If maximizing returns are the priority, understand over what time period you and your investors want to maximize returns.

6. Buyers’ intentions matter. 
  • Understand the investor’s investment thesis and whether it fits with the company’s values and mission. Which partners will protect your mission and values? How will that commitment change over their time horizon of investment?
  • If taking in a new partner, take the time to get to know them and have honest, open communication.
  • Check references and speak to other CEOs in the investors’ portfolio.
  • Ensure investors’ timing constraints are aligned with the company’s timeframe. What is the investor’s expectation around the timing of capital return? Does the company have adequate time to meet investor expectations related to business results and returns?
  • Know how you evaluate the value-add of each investor. How much is the value in what they will do and what they won’t do?
  • Establish a shared view of what success looks like.

7. Don’t forget debt.
  • For a growing company, even expensive debt may be better than equity.
  • Explore debt options alongside equity investments.
  • Understand what debt would require of cash flows and how it may restrict innovation or growth

8. The market will dictate price, but you can dictate terms. 
  • The structure of the deal is just as important as valuation – understand your options and which terms you’re willing to negotiate or not negotiate.
  • Consider board seats, alternative payback, supervoting stock, and anti-dilution provisions.

9. Time kills all deals—prepare for the process ahead of time so that it moves along efficiently. 
  • Ensure your company is in a strong position to go into the market financially and management has the time and resources to dedicate to a capital-raising process.
  • Ensure all stakeholders are in alignment on investment / sale objectives.
  • Understand the timeline and process of raising capital / selling as to not get behind and lose momentum during the process.

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About Michael Whelchel

Michael is Co-Founder and Managing Partner of Big Path Capital, a leading boutique impact investment bank focused on providing Corporate Finance, M&A, and Placement Agent services to impact companies and funds globally.