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The Secret Entrepreneur: Why the hell would I want to sell out?

Why British attitudes to growth will stop us ever competing with Silicon Valley

I think that one of the biggest problems with British businesses is that they sell out too early.

The reason we don’t have a tech scene with companies of a scale to compete with Silicon Valley isn’t a lack of ideas, or talent, it’s that entrepreneurs are pushed to sell out far too soon.

Real, lasting economic value comes from building sustainable businesses that are around for the long term. They bring stable jobs and tax revenues, and provide services that make a difference to society.

Right now however, UK entrepreneurs aren’t incentivised to build for the long term. They’re encouraged to build and run. I don’t think this is deliberate, but it is reinforced in several ways:

The media celebrate entrepreneurs when they raise equity capital for their businesses. Not only is this laughable – they should really celebrate when they actually do something valuable, not just get fools to part with their money – but it has created the impression that this is what a business needs to do, when it should be the last resort.

It reinforces the early exit problem because equity investors invest because they expect a return, generally in three to five years – and this generally needs a sale of the company. Which is also celebrated by the media.

The tax structure in the UK also pushes people this way. Entrepreneur’s relief is great, but offering a 10% tax rate on selling out encourages just that, and starts looking very attractive when the effective tax rate on larger dividends weighs in at well over 50%.

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Changing things around to incentivise owners to hold their shares for a long time by reducing dividend tax could go a long way to encouraging entrepreneurs to stick around.

Attitude to risk is a big part of it as well. Us Brits seem to be more risk-averse than our Trans-Atlantic cousins, eager to cash out instead of letting things ride. This isn’t necessarily a bad thing, but you have to bet big to win big.

Why is selling out so bad through? Two key reasons. Firstly, if you’re preparing a company to sell, you want to maximise the price you get.

This usually means maximising profits and forgoing long term investments, or recklessly pushing for growth without ensuring that everything is in place to sustain it and turn it into profit (or even revenue, if you’re a hyped-up tech company).

Secondly, the failure rate for mergers and acquisitions is staggeringly high – over 70% according to the last figures I saw. It’s a great way to wreck promising companies and destroy value, especially as most founders either leave at or shortly after the point of sale, as they’re usually completely unsuited to working under someone else.

I speak from experience here. Last year I came very, very close to selling one of my companies. From a short-term financial perspective, it was a compelling offer. I’d never have to work again. I could do anything I wanted.

Then I realised that what I’d really want to do is go and do it all again. And that I was being an idiot.

I’m already lucky enough to earn more than enough to support my lifestyle, and to be able to do pretty much whatever I like.

I’ve spent many years building a strong business, and most importantly a great team of people. Why the hell would I want to sell out and go and have to do all that again when I can build on what I already have?

So I’m letting my bet ride – and raising the stakes. Maybe I’ll win big, maybe I’ll lose. But I’m in it for the game.

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