Let me be more specific: you have to close the fund and give the money back to the LPs. Out of all the companies that you invested in, there are some that are cash flow positive but don’t have tremendous growth and there is no possibility to sell the company, and for sure they will not go IPO. I am talking about a situation in which it is clear that it's a lifestyle business and the founders probably want it that way. They don’t want to play the VC game anymore. A situation in which the alternative is receiving dividends for the next 15 years to get your money back. How do you deal with this situation?
I think you're looking at the low hanging fruit rather than digging for the gold that is surely inside these goldmine companies...
What I recommend is to advise all of these startups is to master internet marketing. It's the one skill set that once mastered, can and should give rise to new business strategies that can achieve that which you really want, which is an exit at 10x - 100x whatever their current valuation is...
Literally ask them and their teams to spend 4 hours a day minimum learning about internet marketing, starting with the fundamentals, the pirate metrics...
AARRR - google it if you don't what these are....
Have all your startups declare these metrics, then have them focus on ONE of these metrics, set a goal that is achievable but shows real progress. Give them a goal for every quarter...
And don't worry about anything other than these startups meeting these pass/fail goals
This is a not-so-uncommont situation on the European scene. Typically there can be 2 cases:
a. The solution might be already present within the agreements between founders and investors: If there's an exclusive sell mandate in favour of the VC firm, then this can be triggered if the company hasn't achieved any exit/IPO. The timing for such clause to be actioned is normally aligned to the fund's closing date and pricing is equal or greater than the valuation paid by the investor.
b. If anything like the above was put in place, ore a sale couldn't be achieved, the parties will try to agree on a gradual exit plan where shares are bought back by founders at a certain price in subsequent instalments based on cashflow generated by the company.
A slow growth company with stubborn founders is very frustrating and all too common; I've been an investor with a couple of these and it's like pushing a boulder up hill - they often just don't get it.
However, companies likes these often have unlocked assets within them that should be set free. If the founders own a majority it's difficult because they want to continue to control the company and keep their salary/lifestyle going. They also just lack the DNA to accept risk and challenge. Sometimes their goals get scaled back due to fear, etc.
A couple of things I try to explain:
1. Running a business at no or low growth is very precarious - it's hard to keep it from slipping into negative growth and losing that salary and value.
2. Let others share the risk of failure, hire outsider that can try something new without risking the entire business. I've taken this role many times with pretty good results.
3. Sometimes the problem is that the founders don't want any change that would make them look weak. Subconsciously they will let the company fail before they'll let someone else look better than them at building their business. In this case there isn't much hope, just walk away.
The bottom line is that venture funds are supposed to have a few of these, counter balanced by big winners. That's the game - focus on the winners.