Many founders dream about their exit but when they finally get there, are unsure of how to proceed. Carl Verbrugge, Partner at Swiss private banking group Lombard Odier, shares his tips on what to consider before selling your company.
After years of gruelling work, sleepless nights and ups and downs, some entrepreneurs arrive at the end of the tunnel: their exit. While cashing out seems like an easy affair after many years of being stuck in the startup grind, this last hurdle comes with as many pitfalls as the previous ones.
Few understand these as well as the professionals at the private banking group Lombard Odier. With over 2700 employees – 200 of which are in Luxembourg – spread across the world and more than 225 years of experience, the bank knows a thing or two about dealing with entrepreneurs.
“As a bank of reference for entrepreneurs and a Group solely owned by its Managing Partners who manage the business and are directly involved, we are very entrepreneurial,” says Carl Verbrugge, one of the banking group’s Partners, adding: “Many of our clients are or will be entrepreneurs.”
As an early investor in three companies, Carl has dealt with many entrepreneurs and knows that selling a company you have built yourself goes well beyond getting the best financial deal. Below are seven things he believes every entrepreneur should consider before selling their company.
The earlier you start thinking about a potential exit and what’s needed to ensure it goes as smoothly as possible, the better. For Carl, this means ensuring that you include a shareholders’ agreement when you register your company at the very beginning.
“One of our recommendations to young entrepreneurs is that you should overformalize. It’s just sound governance to have records of everything because it can protect you in the long run and makes you look better to investors,” explains Carl.
2. Have a Data Room
Tied to overformalizing is the existence of a Data Room. Once you’ve decided to sell your company, interested investors will engage in a vendor due diligence to ensure that everything is in order.
“It’s important to start with the right foundations in order to have a well-structured Data Room because it will ensure that the sale happens faster. If you don’t have one, that’s six extra months of work ahead, which will be six months where the company is not as focused on the core business as it should be,” says Carl.
3. Don’t do it yourself
If it’s a general sale and everyone agrees to sell the company, do not do the sale yourself, even if you have the requisite skills.
“Typically, people underestimate the stress related to a sale. Selling your company is a very stressful and often emotional process, which makes it hard to do the negotiating yourself,” explains Carl.
4. Diversify as you go
Before considering their exit, founders should diversify and take some money off the table as they go.
“As companies go through fundraising rounds, investors often like to buy additional shares from founders. Selling these shares is a good idea because it adds money to a founder’s pocket and takes some financial stress away later when the founder wants to exit the company,” says Carl.
5. Consider your position
When announcing your intention to sell, make sure you have not tied yourself to the company too much. Otherwise, the shareholders might make you stay longer than you want to ensure that your absence does not interfere with the continued growth of the company.
“The more the company is dependent on you, the more a buyer will evaluate the company in relation to you and the more likely they are to ask you to stay,” says Carl.
6. You are also a risk factor
Many founders and co-founders forget that they are also a risk factor. Divorce, incapacity or death can occur – if these events are not legally planned for, they can have a huge impact.
“Such events can destroy what we call the cap table because they are unforeseen and can have a huge impact. That’s why it’s important to ensure that the right measures are in place if anything were to happen,” explains Carl.
7. The moment is never right
When it comes to deciding when to sell, you can rest assured that there is no perfect moment. The only thing you can control is to make sure you have a good shareholder agreement which gives you some flexibility in deciding when and how you exit.
As Carl puts it: “The moment is never right. It is either too late or too early. But having a shareholder agreement is key.”