See! Why Should You Absolutely Say “No” to Venture Capital?

The primary factor that drives the saleability of your organisation is it’s potential to scale up and grow in the future. Scaling up requires that you transform your business  creating a culture of continuous learning and sharing, according to the Networlding principles:

Acquirers typically pay the most for companies with the potential to grow. A buying company may even acquire a business that scores high on Growth Potential but low on other attributes because the acquirer sees a way to leverage some of its assets to help the business grow much more quickly than it could under its current owner. This type of transaction is known as a strategic sale.

To fund your growth, an email from a venture capital firm asking you: “Can we grab a coffee on Tuesday or Thursday next week?” may be temptingBe alert! Associates at venture capital firms are sourcing deals using similar sentences. Do not fill your calendar by accepting coffee dates. These requests are respectable, but you must decline.

Saying “no” to real VCs with significant money to put to work and the desire to help create another billion-dollar company may seem counter-intuitive, but be reassured you won’t be the only ones. According to Fundable, 95 percent of growing companies use private loans or help from family and friends. Another .91 percent fund their firms through angel investors. Only .05 percent of high growth businesses receive outside funding from investors.

Journalists often focus on companies that receive ridiculous amounts of funding. We have all seen companies that chase VC funding, getting a lot of investor money, and then quickly get ungovernable. The fact is that this type of “valuation-at-all-costs” model is not only unsustainable, but it is also dangerous for the business.

Valuation can conceal real problems and add inexorable pressure. I am sure you would remember Theranos, the blood-testing company that raised $750 million at a $9 billion valuation. After its technology had failed to deliver, Theranos had its license revoked, faced lawsuits, drastic layoffs, and a shutdown of its testing facilities.

So how do you grow a business without money from venture capital? Well, you focus on what matters. Instead of chasing investors, you focus your effort on nursing a sizable and growing customer base. You work hard at solving a real problem for those customers. You create a company culture that produces consistent and sustainable growth.

The process described above may sound like a slow-motion way to enhance your business value, before selling it, but if you can steer clear of the growth-at-all-costs approach, you can demonstrate to potential buyers lasting benefits.

How should you re-energise your company? The acronym ASIDE will guide you:

A – Accountability

We all know of companies that take action only when pushed — such as by customer damage or bad PR. But by transforming your own business, you learn about accepting responsibility every day. There is just you and the great people you work with to celebrate (and blame).

S – Sustainability

When you do not need to manage the expectations from investors, you can focus on the fundamentals — building a business that will last generations and could sell quickly.

I – Independence

Seeking outside investment for your business may give you access to cash to fund your growth, but it complicates and burdens your path to your defined success. Maintain your independence, and you can stay true to your original vision. When it comes to selling your business, you will have more cash in your pocket as your capital has not diluted.

D – Discipline

It is effortless to spend money frivolously when it is not yours. However, when it is your money, you are more likely to consider where every penny is going. That requires self-restraint, but it will benefit your business in a lasting way.

E – Educate

You get to share your goals and how fast you want to grow with all stakeholders, but you only have to answer to yourself, your customers, and your team — not outside interests who mainly care how your success will deliver the biggest payoff for them in the shortest period. A potential buyer will pay more for your business as s/he will know that s/he will get a high ROI and less hassles.

I know that every business needs capital to develop its products even if it is a family loan. Some companies require expensive infrastructure investments that demand significant funding, such as pharmaceutical companies or corporations that are building data centres. Those are the exceptions though.

It is also true that many great businesses owe their success to venture capital and the partners who helped guide them.

But most companies do not need the added stress and risk that comes from VC funding. You are often better off growing slowly at a steady pace, making miscalculations and readjustments, and building a resilient business that can last for years. Do it your way you will be wealthier and happier.

Can your business survive without you?

Take the free mini value builder test

If you wish to build up the value of your business and would want to explore what you could do to make it sellable, please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or email him, jb@exit-planning.co.uk

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