Finding harmony between advice and self-interest

advice and self-interestI just wrapped one of those calls where I had the opportunity to give advice to an entrepreneur that runs counter to my short-term interests. In this case, it is a story of a first-time entrepreneur who has built a $7 million revenue business and is wrestling with the decision whether to take growth capital or sell the business. He owns the vast majority of the company and he has a fair offer from a strategic buyer that emerged during the course of his exploring financing alternatives.

After meeting yesterday (our third meeting or so), I committed to outlining how a growth equity investor would structure an investment transaction for his business. So today, we talked about the amounts of primary capital and liquidity that a growth equity investor would offer as well as valuation, structure, ownership levels, etc.

But after wrapping up the math, we mostly talked about factors that go way beyond financing structures and numbers. We talked about what it would mean to him to sell the company and put a large amount of cash in his pocket, forever changing his life in a meaningfully positive way. We talked about notching a success on his belt in his first start-up. We talked about his wife, his child. We covered all of this ground in the context of my recommendation:

Sell the company.

I like the entrepreneur. I like the Company. Capital would act as a catalyst to create value in this business and I’m convinced that the business will be larger and much more valuable down the road than it is today. But in a case like this, none of that matters. Sell the company; change your life. Then do it all over again.

It is not always easy to harmonize advice and self-interest. But its not that hard either.

Derek Pilling is a Managing Director at Meritage Funds, a growth equity firm. Derek invests in technology-enabled services businesses in the Internet Infrastructure, Cloud Computing, Digital Media and SaaS sectors.Derek lives in Denver with his wife and his three children. In his spare time, Derek enjoys coaching youth soccer, skiing, hiking, spinning and hopping on his rowing machine in the morning.

Posted in Growth Equity, Lessons Learned Tagged with: ,

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Derek Pilling

About Derek

I'm a Managing Director with Meritage Funds, a growth equity investment firm based in Denver, CO. I've been working with growth stage businesses my entire career. When I'm not working, I ski, spin, coach youth sports and spend time with my beautiful wife and three kids.

I blog because the process helps me crystalize how I frame the world. I want to hear what you think. Please comment.

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