A. Nick Mayhew writes:
First, review your shareholder agreement. Then examine what your business needs and why. Most owners don’t put sufficient thought into this, leading to problems later. Once you are clear, speak to your existing investors and find out why they want to exit. Explore alternatives, dealing with the issues to try to keep them. A new and clearer plan may be needed, and if you can get this in place, ensure the contracts bind the parties to it. If the issue has become heated, use an independent party to help build bridges.
If the investor group will not stay, try to buy them out quickly. If the business is successful, their continued involvement will, at least, hold it back and, at worst, destroy it. Negotiate hard – the business will suffer from being forced to exit investors early. Their exit depends on your support, so play your cards well. Having replacement investment available (even if you don’t use it) will increase your confidence during negotiations.
Many venture capitalists are a good option for businesses that wish to move ahead quickly, but they can be expensive. Each one has a different style and approach. Shop around, explore options and search for a group that believes in your plan. Private equity is a generic term for a range of currently available investor options; some look like VC, some like a co-director/equity shareholder.
A good corporate finance adviser will guide you through this and should have investors to introduce from within their network.
No one invests forever and exit is inevitable, but next time ensure the investor is legally tied into any exit schedule.
Nick Mayhew is head of the consulting department at Price Bailey LLP and advises businesses on strategy, profitability and growth.
www.pricebailey.co.uk