As an SME entrepreneur, you are constantly looking for growth opportunities. Growing your business is your priority, and selling your business to an investment company may be one option.
This strategy is also known as a pre-exit, and it allows you not only to raise capital, but also to benefit from the investment company's knowledge and expertise. In this article, we'll walk you through what a pre-exit entails, its benefits and how to go through the process.
What is a pre-exit?
A pre-exit is involved when you, as an entrepreneur, sell a part of your business to an investment company. This means you sell your shares in exchange for capital and support. However, the entrepreneur retains control and remains involved in the course of business. This approach can be incredibly valuable to entrepreneurs, as you grow your business without putting all your money into one pair.
Benefits of a pre-exit
If you want to sell your business to an investment company, there are several benefits:
- Capital injection - The investment company provides capital, which you can use to further grow your business by expanding, making investments in technology or attracting talent;
- Expertise and network - Investment companies usually have a team of experts with experience in various industries . They are sure to support your business in making strategic decisions and expanding your business network;
- Spreading risk - Selling some of your shares allows you to spread risk and secure some of your wealth;
- Valuation of the business - An investment company helps increase the valuation of your business, allowing you to reap the benefits in the future if you decide to sell the remainder of your shares.
Considerations for a pre-exit
So selling your business to an investment company means many benefits, yet there are some concerns. Keep the following things in mind:
- Selling your shares means having less control. This can be quite confronting, especially when important decisions about the future of the organization are being made. Make clear agreements about the level of involvement and decision-making power of the investor;
- As you sell some of your shares, the likelihood of dilution increases. Your ownership interest decreases, so be sure to find a balance, between raising capital and retaining control, that suits your needs;
- Investment companies are plentiful, but finding one that fits your company culture is an entirely different matter. To achieve success together, a shared vision is important, so don't skimp on this.
A pre-exit can be an effective strategy for you as an SME entrepreneur when you are looking for an injection of capital to further grow your business.
