Building a company requires a special type of individual – driven, passionate, visionaries who are not easily swayed by the status quo. All entrepreneurs who are lucky enough to have a company make it past the ground floor and gain momentum will tell you that is where the work is just starting. There will be hard decisions you need to make, and one of the hardest is answering the question of selling vs. raising more capital.
This is not a question that gets a straight answer. Any sane investor or entrepreneur with experience will always hit you with the same answer. “Well, you know, it just depends.”
And it does. There are a variety of factors that should influence this decision. What stage the company is at, the capital structure, future plans, profit projections, and others all play an important part in this decision.
Despite the glamorized attention that gigantic acquisitions receive in the news (remember Slack’s $27B acquisition?) more than 90% of acquisitions in the global M&A market are made up of medium-sized or smaller companies that are worth equal to or less than $100M.
So before you decide whether or not your future aspirations include becoming a unicorn or not, consider these important factors regarding selling vs. raising capital.
- What Do You Want Your Future To Look Like?
This a very simple yet demanding question. As an entrepreneur with ideas and a tendency to want to advance and build new things, it may not seem very attractive to be stuck answering to a board of advisors for the rest of your life. As you grow and command more and more capital from new rounds, it can be harder to divorce from these ties. Outside capital comes with constant governance and oversight, something that may make you want to consider the benefits of a sell.
- Be Cognizant of Your Capital
It is vital to understand where you are at with your capital and what the long-term goals of this structure look like. How much have you taken in, and what do your investors expect in return? If you want to dilute the company down with more capital because you are confident at the outlook of growth in the future, then there is no reason to not go ahead and raise more capital. However, beware that there is a window for when acquisitions are possible. The more capital you bring in and the longer you wait, the more this window will begin to narrow.
- Keep Your Options Open
One of the smartest avenues to go down involves allowing investors and strategic buyers to have the option to choose how they would like to proceed with funding your business. In order to do this, you need to remain attractive to both types of parties. So how can you do this? The easiest path is to ensure that you have a nest egg through secondary liquidity options. Having investors buy you some extra time and resources to build towards either a big acquisition or even an IPO allows you the flexibility to continue to run your company without being weighed down too heavily.
At the end of the day, the path you choose comes down to understanding what you want your future to look like, how invested you are in said business, and the capital structure of your company. Do you want to be free to create ore companies or build on a new idea, or are you completely and utterly attached to this company? If the bureaucracy of a board and sifting through red tape does not sound ideal, then crafting a strategy for an eventual acquisition maybe your best option to free up your future.
Either way, keeping these 3 considerations in mind can help any entrepreneur to better understand what they want their future to look like while allowing them to navigate these treacherous waters carefully.