How To Sell Equity In Your Company

Selling equity in your privately owned company can be an effective tool if you plan to grow your business or begin to plan your exit strategy. 

Selling shares can help you raise cash to grow the business, reinvest in the company, invest in expansion, pay off debt, or diversify your risk. If you are thinking more about exit planning, selling an equity stake can help you work toward transitioning ownership to other investors, employees, or family members. Selling stock in the business can also help you retain key employees by offering them a bigger stake in the company as an incentive. 

Either way, there are essential considerations to consider when selling equity in your business. This is why many business owners enlist the help of experienced mergers and acquisitions professionals to help them make the best decisions and sidestep any potential mistakes during a rather complicated process. 

Factors to Consider

When you sell your company or equity in it, you still care that what you worked so hard to build will still be profitable and have growth potential. You want it to be in good hands. At the same time, any investor(s) buying equity in your business will expect a high rate of return. They will want to see how buying shares in your business will benefit them financially. This means you must be properly prepared to court potential shareholders, even if you sell equity to a family member or existing employee because they also count on the business to thrive. 

You will also need to have an accurate company valuation, and you will need to be able to present a business plan, a marketing plan, and financial projections. You must understand the difference between accredited and non-accredited investors, the various types of investors (i.e., angel investors, venture capitalists, accelerators, etc.), and the differences between private placement and public offering. Tax implications also need to be understood and taken into account. Having a professional advisor in your corner can make your life much easier. After all, this is a lot to take on, and you still have a company to run.

Additionally, you will need to predetermine how much stake in the business you are comfortable selling, as your ownership will become diluted when you sell equity to others. Think about how much control you are willing to relinquish and how much equity you will need to sell to actually benefit your company. You may not want to move forward with selling shares if you are not willing or able to sell enough to accomplish your ultimate goals for the business’s best interests.

Issuing Private Stock

You will likely also want the help of a professional when it comes to issuing private stock in a partial sale. The process must comply with federal and state laws, which require filing disclosures with investors and regulatory authorities. Laws are different in different countries, so if you sell to investors in another country, you will want professional assistance to ensure that your business complies with those laws. Also, registering a partial sale with securities commissions can be lengthy and complicated, and you still have to focus on running your business. This is also a process in which making mistakes can be a big headache and costly. There are consequences for not complying with securities laws, including criminal liability and problems with future investments. 

Managing Expectations

Selling equity in a business is a process that will take time, especially if you need to court private investors. Don’t expect it to happen overnight. It will involve timing the market right, minimizing risk, and securing the right buyer.

Thinking of Selling?

The best way to protect yourself in a sale and get the process done right is to partner with an M&A firm such as Benchmark International to help you properly prepare yourself and your company for what lies ahead. If you want to grow your business, our multi-disciplinary team of experts will carefully craft an arrangement designed to achieve your goals. If you plan to exit the industry, we will conduct a full exit review and get you on the best track for your future. Partnering with us will give you access to global connections and exclusive knowledge, and we will work tirelessly to get you every bit of value your company is worth.