I have a boot strapped SAAS company with 1.5 years in operations. ARR is approx ~ 600K.
I hold more than 90% and the rest is held by my team. I would like to sell about 10% of my equity.
Your question may appear to be a simple one. As a CPA, CGMA, and business performance expert for over 25 years now, I get questions like this from my clients often.
Your options are not clear from your question, however, I will steer to you to where you need to look to determine what options are available to you:
1) Your company structure will determine some of your options. This means are you a Corp (C corp or S corp), LLC, partnership/multi-member LLC. Due to the 10% held by others, I'm sure your not a sole proprietor.
2) Any operating agreement you may have will also define more of your options. Operating agreements can hold many terms of how you operate your company, including ownership changes, so I cannot give you any advice here without knowing if you have one and what's in it, but the contents will flush out more options.
3) In the absence of an operating agreement (this is always possible) you may need to take "politically and legally prudent" steps. That means you'll need to work out any sale of your stake with your fellow partners.
4) Once you've flushed out your options available to you, you can then set the steps you need to take.
5) Your steps will need resources to help you. Business resources such as guidance on the sound business steps to take, and negotiations to conduct, while keeping your business rolling, as well as legal resources to put any agreements on paper.
Because this is complex, by legal and business measures, I encourage you to call me for more accurate information to help you.
I hope this helps!
You own 90% of what? We don't know what the value of your company is, so first, you would need to put a valuation on it. There are many ways to value it, but you need to come up with something reasonable.
Then you have to find a person who is wiling to buy the 10% that you would like to sell. After that, it is merely negotiations.
I would approach this as you would pitching the company to any investor. You need to show how your company plans to grow, projected growth numbers, and your exit strategy.
If you don't have an exit strategy, then you won't be able to find an investor, and you will have to raise the cash through other means, such as a loan.
In short, we need more information about your company to make a short list of options and which are the most likely ways of accomplishing your goal.
Hi. This is a good question that a lot of startup entrepreneurs face and thanks for asking.
One first needs to determine if there is a shareholder agreement in place between the existing shareholders, and if so, this may contain clauses ( called "pre-emptives" or first right of refusal) which require you to offer the 10% to your team first before offering it to third parties. I need to understand your situation first, and why you are looking to reduce your shareholding - I assume it is to reduce your risk.
You be looking at the following options:
1) Sell it to your staff. You can draw up a simple sale agreement detailing the terms of the purchase. In the US, you can find a template from the SBA, but I recommend seeing a good attorney.
2) In order to keep your staff incentivized to stay on, it may be wise to offer them shares in your company conditional upon them saying on for e.g. 3 years. The effect of this is that your shareholding will be reduced to 80% after 3 years.
3) Sell to external investors - VC firms. Typically too small and early stage for most private equity firms who are looking for relatively large firms with sustainable cash flow from which they can lever the business with.
4) If your business is producing sustainable free cash flow, i.e. cash flow not used for expanding or expenses, and growing quickly it may make more sense not to dilute and to borrow funds from the bank, and pay yourself a dividend, but this would be the more riskier option.
Please call me or message me if you need any further clarity