TAPROOT! | What would make an entrepreneur sell?

30 Aug,2012

By Ananya Saha


Some create to sell. Some create to keep. Why would an entrepreneur who has created, built up and nurtured a company, wish to sell it? And given that the reasons are good, what then is a good time for this sell-out?


PV Sahad, Editor of VCCircle, a news website dedicated to covering private equity, venture capital investments and M&A in India, said, “The right time to sell a business depends entirely on the objective of the management or the entrepreneur.”


Mr Sahad added, “Usually, the companies are sold off when the markets are high or if there are suitable buyers for the company. The suitable buyers knock on the doors when the company is at the peak performance stage. This is when a buyer looks at the company and makes a good offer.”


Prof Kavil Ramachandran of ISB Hyderabad opined, “There are various reasons why a company sells out. One, when the entrepreneur gets excited by something more challenging and wishes to move away from something he has established and toiled over. The entrepreneur and/or management might wish to sell out when the Return on Investment (ROI) and Return on Time and Investment (ROTI) for the effort put in seem good in terms of the valuation.”


One more reason could be that the management of the company feels that the pressures of growing the company further are beyond their current means, and the entrepreneur starts to feel that someone else might be able to do a better job, added Prof Ramachandran.


Mahendra Swarup

Mahendra Swarup, President, Indian Venture Capital and Private Equity Association (IVCA), said that the reason to sell out depends vastly on the outlook of the entrepreneur. “If one’s company is heavily invested or has raised money through IPO, then the compulsion to exit the business is much more.” According to him little or less equity rights with the entrepreneur is also one reason when the companies prefer to sell out.


The companies usually try and scale up their business with the money that an investor (for a stake sale) brings in, or it the entrepreneur wishes to exit the business altogether.


Mr Swarup added that a good time to sell company is also dependent on the entrepreneur. “They can sell when the company is doing well, or is actually not doing well. But usually, companies are sold when the entrepreneur has an alternative scheme of things that can be a new investment horizon or venture.”


Sanjeev Bhikchandani

Sanjeev Bhikchandani, founder and executive vice-chairman of Naukri.com, said, “There are no general answers to when is a good time to sell a company. The motive to sell depends solely on the goals and objectives of the entrepreneur. If they wish to make a quick buck, they might scale up and sell. If they wish to create a huge company, they might not. The time is decided by the motive of the entrepreneur.”


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