You sold a majority stake in your company, now what?
First rule of selling a majority stake in your company: don’t get in the way!
If you’ve followed our blog posts, you may have already read about how to value your startup and how to give up some equity for bigger growth. Now let’s talk about what happens after you’ve sold a majority stake in your company.
When I gave up equity in my software company I pretended—for a while—that giving up majority equity wasn’t the same as selling my company, but it really is. It took a conversation over a beer with a friend who said “Stop saying you took investment. You sold your company.” This sounded overly dramatic in my head, but he was right: you now have a new player in your company. You brought them in for specific reasons, and they have their own ideas. This will mean change. That’s right, change.
I wanted help to grow my company; a strategic partner to help it get to the next stage. I wanted to take some money off the table and grow the company for a bigger payday in the future. But I couldn’t do it alone, and therefore the status quo had to change.
Here is the nightmare scenario for an investor:
- They invest in a company to help it grow faster
- The founder doesn’t fully buy into the changes that are required to achieve this growth
- The investor is stuck with an investment in a company that can’t grow because the founder is standing in the way of progress
Some investors insist on getting over 50% ownership of the company for this exact reason. This gives them control so they can make changes if necessary, which may include changing out leadership. But a good investor also has a reputation to maintain in the industry, so it doesn’t serve them well if they make sweeping changes or unfairly replace a founder/CEO. If they develop a bad reputation in the process it will affect their ability to do future deals.
So, there is a bit of a two-way street here. Everyone wants progress and growth, but the investor and the founder may have different visions of how to achieve it.
How to be successful once you've sold your company to a strategic partner:
1. Remember, it's a partnership; you must work together.
The work isn’t just on you and your team anymore—you have help! That might bring a big sigh of relief. It did for me. Worried about how to hit your sales numbers for next year? Good news! You have strategic help now. Your new unfair advantage is going to really help you beat your competitors and continue your company’s growth.
2. Decide on your own areas of responsibility, and focus on your strengths.
You’ve probably been doing things yourself in your startup, not because you were good at it but because it was necessary. For me, it was sales and marketing. I'm really a product guy and a techie, but I had to focus on sales and marketing in my startup for years because that’s what was needed. We didn’t have the right senior leadership to fulfill that role. Your new strategic partner will help you find the right talent to take on those roles, and sales and marketing are typically the areas that benefit most from the help provided by a strategic partner.
In my case, I moved to the CTO role and focused back on the product, industry, and smaller acquisitions that we could make to flesh out our product portfolio. We hired a sales guru as President (who then became CEO) and we hired an expert CMO to drive marketing, so those areas were now being handled by industry experts.
3. Don’t lose the company culture in the process.
As the founder and CEO you will have shaped the company culture and core values of your startup. These are most likely a reflection of your personality. You still need to be the champion of that to preserve the feel of your company. I spent the first 18 months after the partnership meeting with new hires to talk through our core values. This helped preserve the company culture. You can also convey these values to the new leaders, but it can be a challenge if they have lots of experience in other environments.
4. Don’t get in the way!
When suggestions are made to make improvements, weigh in and be helpful. Think through how the suggestions can work in the company, and be flexible. Help with transitions, endorse changes when possible, and be an example of how to improve and move forward. You don’t want to be the founder that shakes their head and rejects every suggestion. Find the balance and pick your battles as some changes may need to be protested. But always remember why you chose the partnership in the first place. Be open to new ideas.
5. Know when to step aside.
This may or may not happen to you, but I found myself in a situation where my startup had outgrown me. I was responsible for the product and industry side of the house but that was no longer my passion. I had been running sales and marketing for over 5 years with minimal interaction with the technology groups—mostly just product roadmap to drive sales.
My little startup was growing by leaps and bounds, from 50 employees marching up into hundreds of employees. It was time to step aside. At first, I became a part-timer. Finally I stopped being an employee. I still hold significant stock and sit on the board. But now I can get back to startups and pursue things that I am passionate about.
Your experience may be different from mine. Maybe you are the CEO to take your startup all the way to ring the bell on Wall Street. But that wasn’t for me.