Exit this way

Exit this way

Selling a company shouldn’t be the goal. Instead, help people solve a problem, then the sale will come

Whether you founded a high- tech company – or you lead a third-generation, family-owned, metal-bashing firm – you will invariably come up against similar business transition questions. I’m referring here to questions that involve an “exit” of some kind in terms of changing products or succession planning and divestiture. I’m going to use this column to share some ideas about exit issues.

Let me begin by addressing a common question: Can you build a company specifically for a profitable exit?

In my current role, I’ve taken part in thousands of pitches from smart entrepreneurs. I feel a little wary when I hear a company’s founders describe the promising idea that their start-up will focus on and then add, “We’ll build this company up and then sell it in five years.”

This is not a realistic goal. Why? Because, as I’ve noted before, truly great entrepreneurs never take this approach. They are never solely in business to hopefully cash in on what amounts to a lucky lottery ticket.

Successful start-ups (and successful family-owned businesses, for that matter) share a culture in which the key leaders demonstrate a passion for solving a particular problem. This focus on creating a solution, in turn, creates value for customers and brings in orders. In fact, it’s the passion for problem-solving that is key – not the passion for a lucrative exit.

This reminds me of some advice that someone shared with me not long after I accepted my current role at OMERS Ventures: “Remember, you’re not in the investment business – you’re in the returns business.” The two are also not the same.)

So when you’re building your start-up, always keep front and centre the key problem that motivated you to go into business in the first place. As you scale up the company, there’s later-stage capital available to you. This will hopefully mean you don’t need to exit too early, putting you in range of an IPO, buyout or merger and acquisition.

OMERS Ventures is looking to maximize its returns on the investments we’ve made in start-ups. As the CEO of OMERS Ventures, I believe that whether it’s an IPO or M&A, a profitable exit is a win. Speaking from the point of view of a Canadian who wants our country to prosper, I forecast that we’ll see enough major IPOs (versus M&As alone) involving Canadian start-ups that will generate a major pool of domestic capital to fuel the growth of our next generation of high-tech firms.

This leads me to a final comment about that family-owned, metal-bashing company I mentioned at the outset. In terms of exit issues, what is the outlook for it and for those other privately held businesses operating in more mature sectors of the Canadian economy, where the next generation of owners may wish to seek divestiture?

We already know that Canada is on the cusp of a massive transfer of wealth, as the current generation of owners of such businesses, including franchisees, begins to hand over the reins to their successors. Not all of those successors will necessarily want to continue business as usual and may wish to redeploy the proceeds of an exit from the current company into new fields.

My prediction is that market upstarts, such as the Aequitas NEO Exchange – a new online private capital market – will create platforms to help private companies connect with investors and give buyers and sellers entirely new ways to connect. (Note: OMERS is an investor in Aequitas.)

- John Ruffolo