this post was submitted on 25 Nov 2023
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Another way would be to keep a percentage of equity in the business for yourself. Negotiate for $900k plus 15% of the business for you for example. That you you will cash out, reduce your exposure, gain new partners who will inject new energy and will have skin in the game, and you’ll stand to gain for the long term upside.
This would also allow you to pass the reigns to a new manager, and thus free a ton of time that you can use to find your next venture (I wouldn’t stay as an employee, only as a board member and advisor). The whole thing is appealing for the buyers because it signals that you have confidence in the future of the business, and keeping the founder around guarantees stability for the newly acquired company. Since you have 3 potential buyers, you can put the offer on the table and choose the one who accepts it, so this solution will even help you choose the correct buyer.
This is smart if he cares about the money but to me it seems he is more like emotionally attached to his business. 15% is very low to be able to call impactful changes so he needs to watch how they will change his own child into something very different either in a good or a bad way. In worst case they hire all his good employees and shut down the business.
I agree. Can you live with someone doing something to your baby you don't like? If you can emotionally detach I think it's a great idea. If not cut and run.
This is exactly what I would do. Hopefully the new owner takes it to levels you weren't prepared for, and you end up making nearly the same revenue from it without working.
You're young enough that you could take a portion of the money from the sale of the business and start something new, grow that, and sell it in 5-10 years, also retaining a small equity position. Then do it again. And again.
By the time you retire early at 50-55, you could have significant passive income from multiple businesses, as well as substantial savings, stock, and real estate holdings, and have the retirement of your dreams.
Genuine question, how does 15% equity benefit him? Would it be through dividents or simply that he could sell his share for more down the road.
Yes. The dividends will be a source of passive income, and the shares are an asset that can potentially appreciate in time and be sold in the future. Additionally, OP mentions a strong emotional connection with his company, and the 15% allows him a continued connection with it. As a shareholder, he could even be presented with an opportunity to buy back the business at some point in the future.
In this negotiation, it’s important to be careful about establishing terms in the shareholders agreement that will allow for the desired outcomes, such as facilitating for dividends to be distributed every year (maybe even requiring it when certain conditions are met), and that OP can sell his shares freely if he desires to do so. Perhaps negotiate a board seat so he can continue to have a voice in the future of the business, insert drag along and tag along clauses, right of first refusal, etc. The shares alone are valuable, but the terms in the shareholders agreement make them more (or less) so.
Yes. The dividends will be a source of passive income, and the shares are an asset that can potentially appreciate in time and be sold in the future. Additionally, OP mentions a strong emotional connection with his company, and the 15% allows him a continued connection with it. As a shareholder, he could even be presented with an opportunity to buy back the business at some point in the future.
In this negotiation, it’s important to be careful about establishing terms in the shareholders agreement that will allow for the desired outcomes, such as facilitating for dividends to be distributed every year (maybe even requiring it when certain conditions are met), and that OP can sell his shares freely if he desires to do so. Perhaps negotiate a board seat so he can continue to have a voice in the future of the business, insert drag along and tag along clauses, right of first refusal, etc. The shares alone are valuable, but the terms in the shareholders agreement make them more (or less) so.
Thanks for the thorough reply.
Love this approach