I had lunch last week with an entrepreneur who told our growth equity story better than even my well-rehearsed pitch. Here was a great example of a highly successful founder who built a fast-growing business, but realised that he would increase his value by bringing investors in just at the point where the company began to outgrow his abilities.
He said a number of things that struck me as being at the heart of our strategy to focus on bootstrapped companies and founder-managers:
As the business got larger and larger I felt more and more exposed and took fewer risks, which limited our growth. The founders simply didn't have the experience to take it to the next level. So we had a choice, own our own small pie, or a smaller piece of a much larger pie.
In this case, he brought in a growth equity investor who put in cash to fund growth, but also provided some liquidity to the founders and other small shareholders. This dual approach (which is our hallmark too) killed multiple birds with one stone:
- It allowed him to de-risk his position and renew his appetite for risk.
- It removed a few shareholders who were "holding the business back" and made sure all shareholders are aligned.
- It added experienced investors who were able to bring in a very high-calibre CEO and Chairman.
- It put the company on a clear track to strengthening its market position and preparing it for exit via an IPO or a trade sale.
In this instance, the founder was convinced this move was a no-brainer:
We're enlarging the pie way more than we are giving up equity. And with a VC on board, I know they are going to drive equity value up and seek a medium-term exit for all shareholders. Why wouldn't I do this deal?
I couldn't have put it better.