When and how to exit is the most important question that an entrepreneur will have to answer. It’s really important for an obvious reason: your company is most likely the biggest investment that you, the entrepreneur, and your family hold and your decision will impact your wealth, possibly for generations. But, it’s also important for less obvious but equally impactful reasons like: what’s best for your employees? What’s best for the dream and vision that you hold for this company? What’s best for your customers? And, probably the most dramatic: what the Hell are you going to do with yourself after you sell??? Another question: Do you go public? Prestigious, but do you really want to be the CEO of a public company and deal with the quarterly earnings treadmill? These are personal questions that you need to answer for yourself. But the decision to sell is one that involves another party too: your venture capitalist.
As with all of these Articles, the dialogue between entrepreneur and venture capitalist is critical. In diligence, when I, the VC and you, the entrepreneur, sat down and discussed our investment, hopefully we discussed what we both wanted to accomplish. We probably did not have a discussion as detailed as saying “OK, in April of 2012, we will sell to Google”. But we did discuss what you wanted to do with the company and I explained that I need to achieve some liquidity at some time in the future. We shook hands and marched off into the future, arms locked, ready to take on the world. At least, that’s what I hope we did because if you want to build a lifestyle business and I want to be on a public company board, we are going to have a very rocky relationship…
So, just to make sure we don’t run into that problem, I, as a good and diligent VC, probably put a couple of special clauses in the investment documents. These clauses usually include a veto right on a sale of the company, a drag-along provision to make sure reluctant shareholders can’t block our big pay day, redemption rights etc. But, another reason we put these clauses in is to make sure that you don’t change your mind. More on that in my post on the common ground for this Article.
In all my years of being a VC, we have never sold a company when the entrepreneur did not want to sell. We also have never blocked a sale when the entrepreneur wanted to sell. Why? Well, practically speaking, its hard to continue to run a business when the team wants to go. Also, I’m not sure how successful a sale or IPO would be if the management team clearly did not want to sell or go public!
Throughout these Articles of the Funding Bill of Rights, we have spoken about moral commitments and mutual obligations. In my mind, this commitment on when and how to exit is the most sacred of all of them.
This commitment stems from what you have done for us. First, if you have delivered for us and built your business and created value for us, you deserve to call this shot. We are well into the money, but we will continue to ride you for as far as you are willing to go. We are also willing to sell if you feel it is time to go even if we see more value ahead of us. That’s because you delivered for us and now we will deliver for you by letting you make this call.
But, at the end of the day, if you raised the right amount of money and made it last, you and your team probably own more than 50% of the business, so you can do whatever you want anyway!