With over 35 years of experience as an entrepreneur and having exited a number of businesses, Jonathan Cole has a huge amount of expertise with creating, growing and selling companies. He is currently the managing director of Velorution, a premium cycling retailer who are looking to expand its stores across London and the South East. Velorution has embarked on its first equity crowdfunding round on Seedrs. We sat down with Jonathan to talk more about his success and views on exiting a business.
With most business exits taking years to come to fruition, it’s important that entrepreneurs stay focused on getting their startup off the ground and scaling before shifting focus to whether a trade sale or IPO might be the best route for them in the long term. Although it might seem a long way off, Jonathan states that it is vital to plan ahead – “it’s really important to have an exit strategy right from the beginning, otherwise there’s a danger that the business will drift, whether the exit has taken place 3 years after starting up or 23 years after, I’ve always had an idea of how the exit would take place.”
With businesses such as Uber initially focussing on revenue over profit, other startups could be tempted to follow this trend. However, Jonathan operates in a different way, “I’m quite old school in the sense that I like to make a profit as soon as possible. I then reinvest those funds in the business to achieve strong growth, which has worked very well for me in my years as an entrepreneur.”
Attracting and preparing for an exit can be a stressful time, Jonathan’s advice for entrepreneurs is to “ensure the numbers add up, ensure you hit your targets and build a compelling offering which a potential buyer would want to buy, but would be unable to replicate.” – which is sage advice considering that many large businesses could be more inclined to create a replica, as opposed to acquiring a competitor Depending on the industry.
A few examples:
1) Merger and Acquisition (M&A)
A business may decide to buy its competitor to ensure they control the majority of the market. Alternatively, if one organisation is looking to move into another market, they may buy their way in, one recent example of this being Facebook acquiring virtual reality headset producer Oculus Rift.
2) IPO
An IPO (initial public offering) is the first sale of shares by a private company to the public, generally in order to raise capital to help them grow. One of the most famous IPOs in recent time was Google, whose issue price was $85 a share, closing at $100.34 a share on the first day’s trading.
3) Trade sale
When a business is sold to a trade buyer, it will usually include the shares, assets and liabilities within that business. The business will usually transition ownership over a period of agreed time by both parties.
4) Dividends
Not technically an exit. However, if a business isn’t ready to exit they can still distribute dividends periodically to their investors. Offering incremental income to their investment. These dividends will be distributed according to how many shares the individual investor’s own.
Finding an exit route for a business can often seem like a huge challenge. Jonathan’s best piece of advice for entrepreneurs is to “build a company which has real value then find the right buyer. Finding a buyer can often feel like waiting for lightning to strike, but it does. It’s happened to me four or five times, so hang in there!”
For more information on Jonathan’s latest venture, Velorution, you can view their campaign here.
