This is a question that many business owners ask themselves at some stage of their business development, and it is one of the many options available to businesses to fund growth, which include: 

• Taking a majority investment
• Taking on debt
• Funding growth through positive cash flow

This post is primarily focused on taking a minority investment and is inspired by a recent @Pabasso meeting with some of our MDs & CEOs of our Pabasso members hosted by Rob Johnson of BGF in Leeds. BGF are a very credible minority investor, as I know from my exposure to them through my family connection to Boxphish.

Reasons for taking a minority investment include:

1. Access to Capital for Growth: to fund expansion, to avoid crippling debt (the associated repayment burden) and or to give shareholders two bites at the Apple, e.g. take some cash out now and use the investment to grow the business and get a much larger valuation on exit at a later date.
2. Maintaining Control: A minority investment generally allows Management to retain operational and strategic control of their business, Management largely continues to steer the company's direction and culture. Rarely the case with a majority investment. 
3. Strategic Partnerships and Expertise: Minority investors, especially private equity and venture capital firms, can offer valuable industry expertise, strategic advice, and operational guidance to help your business scale and overcome challenges. They may also provide access to their extensive networks, which can open doors to new clients, suppliers, talent, or even future M&A opportunities. Taking investment from the right partner can enhance the credibility of a business for all stakeholders and potential employees, partners and customers. 
4. Partial Exit: For existing shareholders, a minority investment, ie share sale, can provide a way to take some cash off the table and derisk. More and more investors are happy to include a level of cash- out to provide a level of financial security to founders who have all their wealth in the business - but be aware that it will never be enough to distract Management from the new goal which is to maximise value down the line for investors and shareholders.
5. Consolidating Ownership: It can also be used to buy out existing shareholders or facilitate a transition of ownership to the next generation or the Management team.

Important Considerations:

• Never go into the process of taking on investment, i.e. selling some equity, without some good professional advice.
• Do not just proceed with the first potential investor that approaches you or you come across, explore the market and find a partner that is the best fit for you and the business, not always the highest valuation!
• Never forget that investors want a return on that investment, and ideally would like to exit, either as a full sale or a secondary sale to another investment company in 3-5 years with a 3-5 times return. 
• Be clear on the investors' exit timeframe for your business and their target exit valuations; you must be all aligned in this respect.
• Understand that there will be some constraints, generally reasonable, imposed by the investor to protect their investment.

Finally, go into this process with your eyes open, engaging with the right investment partner can transform your business and your life, and success stories are always well publicised. But it's a bit like gamblers - they tell you when they win, but they rarely tell you when they lose!

At Pabasso, we do something very specific and surprisingly powerful.

We bring together CEOs and MDs from different sectors into small, private advisory boards. These aren't networking groups or for people wanting to grow their sales pipeline. They’re structured, confidential conversations where experienced leaders challenge and support one another on the real issues they’re facing.

One of our members described it better than we ever could:

“Pabasso gave me access to things I hadn’t even considered — like acceleration funding and warm introductions to key decision-makers. But it’s not about referrals, it’s about shared experience and serious answers to serious business problems. Accepting the invitation was maybe one of the cleverest decisions I’ve ever made.”

We run invitation-only taster sessions so prospective members can experience it for themselves at no cost, no pressure, just time well spent.

If you would like to attend the next one simply click here.

We are always looking for leaders of established businesses, currently only in Yorkshire, the Humber and the North East, who are keen to benefit from the experience and expertise of other business leaders, we are also looking for experienced business leaders to join us and Chair more Pabasso - Peer Advisory Board Associates boards. Interested? Why not drop us a note or give us a call to find out more?

We currently have a vacancy in one of our Yorkshire-based Pabasso – Peer Advisory Board Associates boards so if you would like to know more about how we at Pabasso – Peer Advisory Board Associates help leaders of established businesses progress through shared experiences, expertise, and support, please do not hesitate to get in touch. 

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