PRIVATE EQUITY, OPPORTUNITY OR CHALLENGE?
You are not taken seriously as an investor until you are also in Private Equity. Private Equity is nothing more or less than shares in a company that is not publicly listed. Unfortunately, Private Equity has acquired a bad connotation due to certain unethical practices. But it can be done differently, with a win-win-win intention. That way, entrepreneur and investor develop a lasting partnership that benefits all parties.
Bring ethics to Private Equity
As an Impact Entrepreneur, I know what it can feel like when a big player wants to buy into your business. It can sound very attractive at times, and I’ve entered the negotiation process a few times. But each time it felt to me like the soul was disappearing from the company. After weeks of exhausting negotiations, the investing partner modified the business plan to the point that there was nothing left of the original vision. Fortunately, these deals have never been signed. But I have seen it happen to other entrepreneurs. Some Private Equity fonds focus on making profits as quickly as possible. They buy up shares cheaply. Then they refinance, clean up and merge. The goal is to resell as quickly as possible for as much profit as possible. Little attention is paid to the human nor to the ethical aspect. This is unfortunate because investing in Private Equity can also be a sustainable win-win-win strategy. To achieve this, it helps to know, understand, and respect the motivations of the entrepreneur.
The fear of the entrepreneur
Sooner or later, a successful entrepreneur gets to that point. The point where he must make a choice. Either stay small and maintain total control, or grow and bring others into the business. For many Impact Entrepreneurs, selling shares to investors is a giant step. They feel like they are giving away their business. They fear that they themselves will have less say in the project that is often their life’s work. Therefore, the sale of shares is often delayed until there is no other way. This is the moment Private Equity funds are waiting for. The investor then becomes the savior, who at that moment can also push through his conditions and will also claim control. The entrepreneur is under time pressure and no time left to look into other funding solutions. He feels like he has no choice but to accept the offer. Thus, his worst nightmare becomes true. This is a self-fulfilling prophecy.
Choose sustainable impact
Impact Investing takes a very different approach. An Impact Investor does not put pressure. He has time and prefers a long-term partnership over a quick win. Of course, the business plan will have to show that the project can generate income and returns. But the positive impact for all stakeholders is at least as important. As an Impact Investor, I will never benefit from an entrepreneur who wants to sell shares out of fear or despair. That is not sustainable. When I want to support in such situations, Impact Lending can possibly be a solution, as there is no transferring of the shares.
Either way, I like to take the time to get to know a business well before becoming a shareholder. An involvement as a mentor, for example, is a good way to get to know the business and its managers from the inside. Another way is simply starting with a small project. Together we set a concrete goal to be achieved. Then we provide the necessary support so that the entrepreneur can achieve that goal.
Get to know each other in a pilot project
It takes at least a few months to get to know a company well. First step is to get a good understanding of the current situation. What is going well and what can be improved? What are the challenges and what needs to be addressed first? Depending on the situation and the needs, we will determine the priorities and thus the focus for the next few weeks and months. Often there is an urgent need for income. Focus can then be on optimizing the sales strategy and financial strategy. Often, also operational support is needed and then I introduce other Impact Entrepreneurs from our network. These can provide support, for example, with experienced management assistants, project managers, sales and marketing professionals, communication professionals and so on. Either way, the entrepreneur remains ultimately responsible and it is the entrepreneur who must show that he can deliver. So it is crucial that the entrepreneur feels confident and can focus on the goal. It is counterproductive if he is distracted by financial or other concerns. Therefore, we might also integrate Impact Lending as a financial strategy in this phase. This will ensure that all operational costs can be paid for. When this financing strategy is properly applied then it is a safe way for lenders to lend money to the Impact Project. The principal can be secured and a periodic return can be guaranteed, regardless of whether or not the business objectives are met.
Private Equity as a win-win-win
Imagine there has been a time of cooperation. The initial goals have been achieved and the project is doing well. The entrepreneur is empowered and confident about the future, no matter what. Only then can Impact Entrepreneur and Impact Investor start talking about a Private Equity investment from a place of equality. Only then do you get a business relationship that is sustainable. It can only arise from the free will of parties to consciously make the commitment. With full intent, not from acute necessity. But from a conscious choice to strengthen and support each other in the long term. Even then, in the most optimal circumstances, it often remains a big step for the entrepreneur to transfer part of the business to another party.
Choose the right structure
When the entrepreneur is eager to continue working together and the Impact Investor is still interested in buying shares. Then it’s time to start discussing which legal structure is best suited to seal and sustain that partnership. Which corporate vehicle is the best choice, today and in the longer term? How will you spread risk? Which jurisdiction is most appropriate? Will you work with a holding company and with management companies? What is the impact on taxes? What exit strategies are available? What opportunities do you have for doing business internationally? Perhaps you also want to live abroad? What does that mean for social security, health care, retirement? What about your family, your partner and kids’ education? In short, how will you arrange all this properly, so that you can continue to make an impact in a sustainable way? Yes, even across multiple generations. There is an awful lot involved. It is therefore very valuable to exchange knowledge and experience with other Impact Entrepreneurs and Impact Investors. Still, every situation is specific and different. So be sure to seek advice from independent experts. A second or third opinion in this matter is certainly not an unnecessary luxury. You have always multiple solutions and multiple options, each with their pros and cons.
Enthusiasm as a measure
As an Impact Investor, you are eager to support entrepreneurs. From this enthusiasm, you often fail to see an underlying fear or need. Take your time to explore the motivations of the entrepreneur. This person should be at least as enthusiastic about the idea as you are. If not, it is probably not a good idea to invest in the Private Equity. In some cases you can offer Impact Lending as a solution. Private Equity can only be considered when all parties consciously and enthusiastically opt for the idea.
Let’s share experience and expertise
If you are an Impact Investor, I invite you to connect and explore how we can join forces and make a sustainable win-win-win impact.
You are most welcome to participate in our monthly open Connection Call. Check out www.QuantumPreneur.com/calendar for an overview of the planned online meetings.
If you would like to discuss actual Investment or Lending opportunities, starting from 1K, let’s schedule a private call. Pick your time and date using this link : https://quantumpreneur.com/scheduler/schedule-private-connection-call/
