When is the right time to cash out?

Editor’s Be aware: Every week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will provide candid, sensible, and generally shocking recommendation to entrepreneurs and founders. To submit a query, write to Webb at [email protected]

Q. We’re long-term buyers. Considered one of my corporations is doing amazingly nicely and has reached unicorn standing. It simply raised a terrific spherical and the new investor is providing to purchase again shares from present buyers. Ought to I take into account doing this?

–Angel Investor

Expensive Angel Investor,

Perhaps you need to take into account this, although I would like much more info to make a advice.

Some issues to take into consideration:

First, what did you place in and what are your shares presently price? Are you happy with that return?

What are the prospects of the firm? If it simply raised a terrific spherical meaning at the very least somebody thinks the prospects are a lot larger than the present measurement as buyers need to see vital return on their capital. Due to this fact, my default reply to your query is no, don’t promote as a result of this firm will in all probability turn into extra precious, not much less.

Is there a reduction to the newest worth from the new investor? We frequently see one thing like 10% to 20% off the worth and if the firm is nice, I typically don’t need to obtain a reduced worth.

I don’t know what your liquidity standing is. Do you want the cash? In that case, then it could make sense to cash out, or at the very least take one thing off the desk to cowl your funding and let the relaxation experience.

Additionally take into account your portfolio focus. Is that this one funding price an excessive amount of of your portfolio, or are you snug shedding all of it if the firm doesn’t succeed? As all the time with investing, it’s prudent to have threat unfold throughout corporations and methods.

Simply to share my very own expertise right here, in the 11 years since I based Webb Funding Networks (WIN) we’ve been provided a dozen or so of those offers. It’s uncommon that we are saying sure, however generally we do. (We’ve accomplished two of those tender presents.) When making your resolution it’s vital to weigh all the choices, make the resolution, and transfer on. Do the greatest you may on this second, however the reality is you’ll solely know in case you made a smart move years from now.