Growing with an investment partner: opportunities and choices for entrepreneurs

Written by: André Scheirlinck

As an entrepreneur, you are often consciously and unconsciously working on the future vision of your company in relation to your personal growth ambitions. Sometimes from your position as an inspiring leader, other times as a driven director and manager and other times as a driver of operational processes. This entrepreneurial drive has an impact on your current business operations. Growth requires time, attention and choices and brings internal challenges. Greiner’s classic growth model shows that each phase has new issues.

Growth can be achieved in various ways: broadening customer segments, entering new markets, expanding internationally, or developing a broader offering. A strong management team and a solid organization are indispensable. There are three common growth paths: organic growth, entering into a strategic partnership or growth through acquisitions. The question is: how do you finance that growth?

The necessary investments made to achieve this growth can be made from retained earnings and cash flows. It is also possible to raise additional capital from banks and alternative (informal) financiers. A third option is to look for a financial party to partner with you, the entrepreneur, to execute the new growth phase. A common variant is to have a financial investment company (Private Equity or PE) participate in your company.

Over the past 10 years, the presence of investment companies in the Dutch SME market has increased significantly. By taking a (majority) stake in the company, they can provide the necessary capital to accelerate growth. Besides the financial interest, such parties have a lot of knowledge and experience in optimizing the internal organization, realizing growth strategies and mitigating business risks. This offers opportunities, but also requires careful choices.

How do you find the right party in a partnership? The strategic fit must be good, of course: does the party match the vision for the company’s growth and development, and are the two visions of the future clearly aligned? Equally important, but perhaps less concrete to compare, is the personal “click. Do the cultures and communication styles fit together? What successes have already been achieved in your industry?

Next, in addition to the proper valuation and design of the transaction structure, it is important to properly define the governance and decision-making arrangements to ensure the desired roles, duties and responsibilities of the entrepreneur and investor. This requires careful preparation.

There are many considerations and aspects to consider. Before entering into such a partnership, it is important to have the future vision of the business clear, the business itself in order and ready for the next phase. Consider bringing in someone with experience for these choices and processes, so that you as an entrepreneur can maintain the desired control over your business and work with an investment company to achieve the next phase of growth. Optimizing your own shareholder value is paramount!

This article appeared in the fall edition of Zaan Business.