"Entrepreneurs should try to sell as little and as late as possible because they risk closing a deal that sacrifices the company's potential", says Matei Paun, co-founder of the Black Sea Fund and a specialist with more than 20 years of experience in the investments field.
Six tips for entrepreneurs negotiating with an investment fund:
- Entrepreneurs and investors must share common values because this is the best way to minimize and manage long-term risk. Even if there is good alignment on numbers, the relationship can break down at the first difficult moment if there is no alignment on values. These situations can easily be avoided if entrepreneurs and the fund representatives invest time in getting to know each other better. Entrepreneurs should treat the fund as a partner, not an opponent, and the relationship between the fund and the entrepreneur should be seen as a stable and trusting partnership. An investment is based on at least a medium-term relationship, which is likely to be subject to many trials and crises and the uniting element is the shared values that the partners share. They allow us to manage crises more efficiently and reduce the risk of the investment.
- The entrepreneur should focus on building the business and keeping as much business as possible. Sometimes, entrepreneurs go to a fund not because they need to grow but because they want to take advantage of an opportunity. Some entrepreneurs have already been working for 10-20 years and want to sell a stake in the company. But my advice is to try to sell as little as possible and postpone the time for an eventual sale. The more the entrepreneurs sell and the earlier they sell, the more they sacrifice the company's potential.
- To perceive the investment and the relationship with the fund not only in financial terms but also as a support for know-how and the networking area. Funds come with vast experience and often mean a pool of people that entrepreneurs would hardly have access to. Funds don’t represent just money, but an accumulation of considerable experience, relationships, people, etc. Often these elements can prove far more important and valuable than the financial resources themselves.
- I think entrepreneurs should try to attract the key employees from the team into the company's shareholder structure and create an alignment of interests at the shareholder level. This can provide a great deal in terms of stability in retaining talented and committed people and can create a goal that the whole team shares. This step is essential because a system in which key people become involved in the shareholding can lead to a more valuable and stronger company.
- When the entrepreneur chooses an advisor for a potential transaction, the most important criterion is whether that financial or legal advisor has been involved in similar transactions before. The consultants must have specific private equity experience, not just general legal or financial advisory experience. I have come across situations where the entrepreneur chose the advisor based on a friendship they had had for many years, but that person lacked experience in the field or had too much ego. The result was the failure of the transaction. I believe that such an approach is wrong and should be avoided.
- After a few years in business, it sometimes happens that an entrepreneur no longer to have the vision and boldness from the company's early days. He may be in such a situation after accumulating negative experiences with banks, employees, suppliers, but, above all, because of the lack of financing. In these moments, the investment fund can play a crucial role in redefining the company's vision and relaunching. We reopen entrepreneurs' eyes to new horizons and possibilities, we support them to achieve goals they had not previously thought of, we help them to overcome limitations that may arise from lack of financial resources, know-how, etc. A fund brings a new perspective, a fresh one because our experience and detachment often help us see further than entrepreneurs.
Matei Paun is a specialist with more than 20 years of experience in the investment field - so far, he has been involved in dozens of transactions. In 2005 he founded BAC Investment Banking, and since 2018, he has been the co-founder of the Black Sea Fund, an investment fund focused on SME transactions.
About Black Sea Fund
Black Sea Fund is an investment fund launched in 2018 by Arin Ion, Matei Paun, Cornel Fumea, and Adrian Vasile. The fund has a budget of €43 million and has so far invested in companies as
Intermedio General Group SA (Theta), Clinica Dentara SA (DigiRay) and D-Toys. The Black Sea Fund is mainly interested in medium-sized companies and the investment per company is between three and eight million euros.