£3m and a Yacht

Long before I entered the dark side and joined a VC I worked for a software systems integrator. One of our contracts was based on a financial application from a small company. The negotiations with the two “not so young” founders took some time as they were rather stubborn and wanted at least £1m out of the deal. As a bit of an aside during the negotiations the discussion turned to their hopes and aspirations for a return on all their hard work. The final answer was £3m and a yacht each. The £3m was sufficient to retire on and the yacht was to enjoy as a symbol of their success.

Years later having joined an early stage VC, I have many similar discussions with founders and entrepreneurs about what they want for their hard earned efforts. The answers vary from “sufficient to fund my next venture” to “many tens of millions”. In setting people’s expectations it is worth taking into account the chances founding a unicorn and balancing it with the right level of ambition to set a realistic goal. Although we now have four Unicorns here in the UK and some sizable recent exits, such as King, an exit of £20m in cash would still be an impressive achievement in anyone’s language. The journey to take an idea to point where someone will pay £20m for your business is an amazing achievement in my view. Of course if you do reach the point of a £20m sale there is the inevitable decision to either take the money or go for more and continue with the business. Even if you decide to carry on well done to have got there and created the platform for future growth.

Having talked to entrepreneurs about exit expectations, then there is their own share to be considered. Having taken on a few rounds of investment you will own a reasonable part of your company but it will be less than half and 15% would be a reasonable expectation. Therefore with some simple maths on a £20m exit and throw in some transport of your choice and you are back to £3m and a yacht.

At the end of the day it might not be viewed as truly entrepreneurial and rather British to settle for an exit of £20m. However do not let anyone take away the achievement of building a business for scratch and selling it 10 years later for £20m. Hopefully as a founder you will get your £3m and a yacht for you efforts and the achievement.

Mike Bowman