How Do You Know When It’s Time To Go: Questions Entrepreneurs Should Ask When Considering An Exit

By Steve MacDonald, MacDonald Ventures

New president, new regulations, perhaps not very many regulations at all. And with it, maybe a lot more deals can get done, with a better chance of closing. Is it time to sell? 

If you’re an entrepreneur, maybe. But maybe not. Just because it might be easier to find the exit, should you use it? How do you know it’s time to sell the company you built through so much effort and time? 

It’s a tough question, and the answer varies for every founder. But having had two exits of my own companies, and been part of numerous others as an investor, I’ve at least learned some of the questions you should ask yourself when you’re thinking about it. 

I built my second company, myMatrixx, over 16 years. All along that path, I had people regularly ask “What’s your number?” Basically, how big does your company, or the payout, need to be before you’d sell? 

My VP of sales always asked my number (sales guy, what did you expect?). Was it $10 million, $50 million, $70 million? We kept beating our revenue targets and I was still having fun. I liked the team I worked with. We were still making a difference for our customers. And there wasn’t a big regulatory or competitive threat. Why sell? So I didn’t. 

One consideration is your capitalization table. When you raised money, did you take points off the table? Personally, I didn’t have institutional investors that needed liquidity. Conversely, is your own equity share so low that you wouldn’t realize much if you did sell? 

I was on the board of a company that raised $20 million at a $120 million valuation. The founders were contemplating taking money off the table, but they wouldn’t have much equity left. Relatively speaking, they wouldn’t get that much and when the company sold later, their big score would very likely far outweigh the benefit of taking the early sale of a portion of their equity.

I asked the founders, “You currently have a stock that’s growing 50-60%+ per year that you understand and control. What’s the likelihood you will hand over that cash to a money manager that will give you greater confidence and a higher return than your current position?”  

Don’t get me wrong, not all founders can answer a similar question with confidence.  If you can’t, that’s an indication to sell. In this case, the clear answer for my founders was not to sell yet.

The founders were in their early 30s. Their company was consistently beating sales forecasts.  The market was growing. They had an early market lead. If they took money out, where could they possibly invest (after-tax) returns that would pay a (legal) 50-percent return? Basically, will the money you take out change your life? If not, why bother? They were too young, the proceeds too small, for a deal to make sense. 

Another set of questions: What’s your line of sight? How’s your cash flow? How fast are revenues growing? Where is your company in its life cycle? Where are you in your life cycle? 

With my company, for the longest time I had more confidence in my sector and my company’s place in it than I did anyone else investing the proceeds of a sale in the stock market. 

After about a dozen years though, I wanted to step back, becoming chairman and bringing in other professionals to run the company. That was, ultimately, not as well planned as it should have been, though not so much financially as personally.

That’s because when you take a step back, just like when you take a check, you relinquish control. Are you ready for that? If I had it to do differently, I would have had a better plan for what to do next. 

Being chairman was, for me, a kind of purgatory. I wasn’t running my company day to day, but I also wasn’t doing enough of anything else. I had my own ideas for running the company, but that led to conflicts with the new CEO. After four years as chairman, I was ready to sell. I was 49, no longer enjoying my role, competitive threats had increased, and I had a buyer willing to pay a premium. It was a big step, but it was time.

The lesson here: If you’re stepping back even partway, know the direction you’re pointing your feet next. You need to find some pursuits that will occupy your time, your creativity, and most of all, your purpose in life. Notice I didn’t mention money. 

Fishing, kite-boarding, diving, skiing, and all those other “retired activities” only took me so far.  Eventually, I found those next purposes in life. I started doing early-stage investing. I launched MacDonald Ventures. I got further involved as a GP of Florida Funders, a fast-growing venture capital firm.  I also got involved with a couple of accelerators, so I could better understand the local startup ecosystem. Eventually, my family and I spent a year in Italy, while I pondered what was next in my life. 

I probably should have leaned harder into all of that far sooner, and bought another company to run. After several years, I did that too, with Kush. 

Most of all, I knew it was time to move on to the next phase of my life, for myself and for my family. It was time to go.