Sell your Business, Keep the Growth

Is it really possible to sell a part of your business as a way to get more from it? In short: yes.
Let business be the place where this sort of thing can happen. I can already imagine sparking protests from Wall-street-occupies everywhere about how business always wins at the expense of everybody else. Unfortunately for all proponents of an anti-business world, we are not talking about taking away from anyone. On the contrary, this is about sharing wealth with others. Let me explain.

I recently read Anna Vital's great How Funding Works – Splitting The Equity Pie With Investors article. It nicely describes the various stages of capital funding a company can go through. The article reminded me about a misconception many business owners have. Often, business owners evade the idea of one day selling their business. They think that the day they sell will be the day they quit building wealth; that selling means no more income. It is almost equivalent to becoming old and irrelevant. A real tragedy for someone who has grown accustomed to constantly finding ways to make things better. As a result, owners everywhere refuse to plan an exit strategy. And who could blame them. Who would want to become irrelevant?
Rather than seeing it as part of an exit strategy that'll allow them to take some money off the table while diversifying what they have built, their thinking leads them to believe that selling part of their business is similar to selling an asset like a car. When you sell a car, you stop getting transportation. But selling a business does not stop the benefits. Selling to the right people who will invest in the business will make it grow; making the owner's leftover shares worth much more in the end.

If you do sell, make sure that the new partners have much more fire power than you did. From access to cash, to access to professionals, to access to strategic partners and access to better customers, anything that they can bring to the table will increase the value of your diminishing share of the business.
As a result of the growth after each sale, the founder's unsold share can in fact grow to be much bigger than it was at the time of the first sale. How much bigger? Well, much, much bigger. In the case illustrated in Vital's article, the 17.6% portion of the company that the founder kept all the way to the  IPO became worth more than $450 million. Not a bad chunk of cash for an owner who originally sold half of the business for nothing.

Launch Funders & Founders

From zero, his share of the business turned into $12K, then $310K, then $760K and finally $450 million; all while it went down from 100%, to 50%, to 37.5%, to 31.2%, and finally to 17.6%. Clearly, it is much better to sell to the right buyers to give the business a better chance to rapidly grow. Remember the Walton's? Sam Walton's family members are many times wealthier now than before taking Walmart public in 1970 at $16.50 per share. Forbes has Christy Walton pegged at $28.2 billion, Jim Walton at $26.7 billion, Alice Walton at $26.3 billion and Robson Walton at $26.1 billion, for a total of $107.3 billion for their inherited share of a company selling half a trillion dollars in stuff. In 1985, Sam Walton's 20% share of Walmart was worth just $2.8 billion in comparison.
I strongly believe that this tendency to take advantage of what equity markets offer represents a clear advantage for American company owners over their European counterparts. Europeans usually keep their business ownership for much longer than Americans. Case in point, giant furniture retailer IKEA continues to be privately held. Ingvar Kamprad, its founder, has a 100% stake in the company that in 2011 was estimated at $23 billion by Forbes. Because it is impossible to test the counter-factual, we can not argue that Kamprad's shares would be worth more if his company was publicly traded. But what we can surely prove is how people like Microsoft's Bill Gates and Facebook's Mark Zuckerberg are worth a gazillionth each despite having sold most of their businesses. Zuckerberg's share is estimated at $13.3 billion by Forbes after selling 71% of Facebook. Gates' is estimated at $67 billion after selling a whopping 95% of Microsoft.

I will leave you with at least the curiosity to explore a partial capitalization of your business. It can be done to help bring in new skills and energy to the company's management while infusing needed growth capital. It should help you safeguard part of what you have built while allowing the remaining part to grow much larger. A partial sale of your business does not need to be the end. On the contrary, it may be when you start building "real" wealth for your family.