What’s hot in business news? Founders are getting rich, but there’s a right way and several wrong ways to go about it. The best turn around founders make are getting there because of a particularly intelligent and careful strategy.
Founders that cash out early and are making a substantial fortune are few and far between. You have to have the right kind of momentum behind the business to see it grow and know that it’s going to continue for the investors. Without that, the business will flop faster than the Enron scandal.
Start by pitching to investors what the business can do and what it will continue doing. Don’t ever put into the sales pitch or meeting agenda what your liquidity aspirations are. Investors are there to put money in and get more money out, and if you make it apparent that you want to run away from your business just as fast as you can, you will scare them off and be left begging to sell when the time comes.
Next, you can ask the investors for a little motivation now so they can get a bigger payout later. This is a point they are usually willing to flex on, as it signals your personal commitment to the company and willingness to stay put for awhile while they take over. You are helping them get the hang of what it is the company is about and how to run it and make it succeed beyond their wildest dreams. Fueling the fire of growth begs for more offers from more directions. When it does, you might find that more than one investor is willing to buy you out. Also, when they are willing to relieve financial pressure for you, you should be more willing to help them run things for a little while. It’s a win-win, and that’s just good business sense and ensures security for all.
Speaking of good business sense, don’t try to shoot the moon for liquidity. The current standards of what is fair and good is between a quarter of a million to a million and a half dollars per founder. Founders sell between five and fifteen percent of their holdings in order to stay interested in the company. Don’t overdo that because you’ll lose interest or it just won’t seem worth it to stay motivated and stay with it.
If your company starts to make gains in the millions, that’s when it’s time to cash out for good. Investors want in on what you have going and you usually will want out altogether. Your maximized financial growth and boredom combined with their desires to increase their portfolios and profit will get you your dream payday. Just keep in mind, again, that these cases are extremely rare unless you’re doing as well as Steve Jobs did with a certain technology company.
As a founder who’s cashing out, if you get this far, make sure you have an attorney and an accountant managing things for you quite clearly. It’s quite easy to forget about taxes on sold shares and the transference of property to new owners in the midst of the excitement of making millions. However, having an attorney and an accountant to make sure the sale is on the up and up, no matter whether it’s just shares or a unique dividend method like in the famously publicized Airbnb founder cash out, is the wisest and smartest business move you could make yet. When tax time rolls around you will be very grateful for the work a good company counsel and accountant has done to keep your profits and success from rolling over into the hands of Uncle Sam. They will legally help you keep as much as possible while legally avoiding any issues or mistakes that come from poor choices of other company founders.
If you follow this simple and steady advice to cash out, you will come out on top. If you make the fatal errors other founders make, like signaling for an early release and liquidity, you will probably fail. It’s your choice; go about it the proven safe way, or make huge costly mistakes you’ll kick yourself for later.
