Entrepreneurs could be holding back the growth of their business and jeopardising their long-term financial security by retaining full ownership of their company until retirement, according to Enterprise Ventures.
It wants to encourage more owner-managers to consider a two-stage exit process by selling a minority stake first in preparation for a full exit later.
Paul Taberner of Enterprise Ventures said bringing in an investment partner could re-invigorate many established businesses which would help to stimulate the economy.
“Our experience has shown that, where entrepreneurs can realise part of their investment, they often gain a renewed appetite for growth,” he said.
“Many owner managers see their business as their pension which they rely on selling to finance a comfortable retirement. From a personal point of view, tying up your wealth in one company, even if it is your own, is not always a sensible investment strategy. We only need to look back to the last recession, when many owners were forced to delay retirement or sell at the bottom of the market-.
“From a business point of view, it may also hold back growth. Understandably, older entrepreneurs tend to be more risk averse – they have spent years building the business and don’t want to jeopardise it by embarking on aggressive expansion, or put their house on the line again by giving personal guarantees to raise finance.
“Entrepreneurs must rethink their exit strategy and finding an equity partner to invest alongside is the ideal solution as it allows the business owner to share the risk and secure the future for their family, while retaining overall control of their business. In these situations the entrepreneur often gains a renewed appetite for growth. The added value that a venture capitalist can bring will also help to prepare the business for a future sale and maximise its value.”
Unlike some of the main banks that are often reluctant to fund partial exits, Enterprise Ventures has funds which are able to do this and is keen to talk to entrepreneurs who might be considering this.