Facilitating a partial exit - the holy grail for founders today?

Whilst some founders may be all too keen to see the back of a business they grew from a seed of an idea into a successful enterprise, it’s fair to say they are likely in the minority. For many - and indeed for some of the early stage investors who shared in the founder’s passion, dream and invariably a degree of turbulence along the way - the idea of selling the entire asset and entrusting its fate to a new custodian can be something that is genuinely feared, not welcomed.

With that in mind, the challenge of realising a liquidity event, enabling the recycling of capital and still retaining a material ownership stake - and voting rights - in the business is one that faces many advisers and founders every day.

Historically the solution may have been to look at a traditional public market listing, but the rising costs, reporting and regulatory burdens here have resulted in a pattern becoming entrenched over the last few years - companies are staying private for longer.

Another option is a trade sale, but that’s likely to result in a binary outcome. Attempting to negotiate a residual role under a new ownership structure is unlikely to be popular with the new investors - and likely not so rewarding for the founder, either. It would also almost inevitably remove any concept of optionality for an early stage investors who wanted to remain part of the venture for an extended period of time, too.

That’s where the modern private market now plays such a critical role, addressing each of these challenges in turn - and without the costs risking the entire venture being left to look like a vanity project.

A markets-lite listing allows transfers and partial sales of securities to be made in a transparent and well governed manner. Guard rails can be applied in line with the company’s requirements to provide whatever degree of control is necessary in ensuring ownership doesn’t transfer to unwelcome parties, trading windows can be defined, whilst trading limits can also be applied to ensure price volatility is well managed at all times. This new generation of market is all about putting the company in control, making sure their needs and those of their investors are addressed, whilst operating within a formalised framework.

This approach gives institutional investors the confidence to get involved, provides an exit route for those who want to scale back their holdings and a well defined route to capital table restructuring or consolidation. The panacea of a controlled, partial exit can is now within reach of any privately held business.

Mike McCudden, CEO JP Jenkins

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