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Tom Elgar's Insights

| less than a minute read

Seller beware!

A few years ago I did a presentation to a VC firm. At the end of the presentation (to a senior group of 4 or 5 from that firm), there was the question of what to do with the share holding of an ex-employee with a substantial remaining stake in our business.

One of the group laughed that 'we could make that go away'. Years of his work could, it seems, be evaporated. It was not a comforting remark (and we had nothing more to do with them).

The one thing I learned selling our business was that there is a massive mis-match between the expertise (huge) and emotional involvement (very low) of the buyer and the expertise (effectively zero in this domain) and the emotional involvement (almost total) of the seller.

As the seller this puts you at an enormous disadvantage so you have to expect to have a really horrid time for many, many months.

The most recent study, by Profs. Brian J. Broughman and Jesse M. Fried, found that among a sample of venture capital deals, the common investors in roughly half the cases were entitled to nothing when the company was sold, even when the sale was for tens of millions. And in all but one instance, the majority of the sale proceeds went to the venture capitalists and other holders of preferred shares.



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