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CEOs

Why A Minority Equity Partner Makes Sense

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You know your company needs capital, but you don’t want to bog your balance sheet down with a boatload of debt. You happen to be a CEO with a controlling stake that gives you much-coveted decision-making ability. How do you facilitate your company’s growth while maintaining its financial flexibility and your own decision-making capabilities?

A minority equity partner may be a great option. Below are three benefits to bringing on a minority equity partner for your company:

1. Get more expertise in the room

Ideally, taking on a partner means infusing your business with more than just money. The right partner should also bring expertise that you and your fellow executives might be lacking.

For instance, let’s say you’d like to build out new SaaS capabilities. One way to do it would be by investing a minority partner’s capital into building out that new software offering internally. A SaaS expert, in this case, could make a great minority partner.

An alternative to building internally, however, is to acquire externally. Perhaps you’d rather use your partner’s capital to go out and buy a small software company – here, it’s valuable to add tech M&A experience to your executive team. Consider where you can best-leverage additional mental resources, then seek a partner who brings those.

2. Shoulder the decision-making burden

While you probably want to retain executive authority, having open ears to bounce ideas off of can bring you both mental and strategic benefits.

The loneliness that many CEOs feel is well-documented. One way to fight feelings of solitude is to incorporate new partners with whom to discuss upcoming initiatives and objectives. This is especially true in cases where your new partner has past managerial experience and can offer guidance when sensitive personnel or important operational issues come up.

Additionally, when considering strategy, the opinion of an industry expert can only elevate your own decision-making capability. Chances are your partner will raise possibilities for growth you’ve never considered, presenting new options to weigh against those you might have defaulted to otherwise.

3. Take a few chips off the table

When you hold the majority of equity, minority partners you bring on may very well tap into your pool of shares. In other words – you’re likely going to sell stock to bring on a partner.

One big advantage of this is that it offers an opportunity to generate a return on your investment in the company without sacrificing all of your upside on future growth. Rather than earning a return upon retirement, bringing a partner into the fold allows you to take home some cash while continuing to do what you love.

That smaller share in the business also mitigates the risk of holding onto so much equity in a single entity, allowing you to diversify the earnings and mitigate risk as you look toward eventual retirement. Especially in volatile industries like technology and life sciences, such an opportunity is worth paying careful consideration to.

If you’re considering alternatives to debt for infusing capital into your business, look no further than a minority equity partner. Not only will they be well-positioned to offer the capital you need, but they’ll also bring expertise, decision-making capability, and liquidity for the equity you own in your company. Considering you’re still the one in charge, that’s not a bad day.

 

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