A great investor founder relationship is like the environment creating perfect conditions for a harvest. Without a balance of sun and rain, a harvest will suffer but when the energy is balances all around, the harvest will prosper. A Founder and Investor’s relationships require a similar balance during the early growth of the business.
Quoted by David Amis and Howard Stevenson in Winning Angels: The 7 Fundamentals of Early Stage Investments, “Harvesting is the endgame of early-stage investments, the financial score by which you will measure your success.”
There are several different types of harvest associated with business, and some are positive while others are seen as negative. As a founder getting ready to startup a meadery in Asheviille, North Carolina, I have researched some local wineries and breweries to learn more about their startup phase and operations. During this process, one of the successful breweries in Asheville, Wicked Weed, harvested the company through a Strategic Sale.
Many regular Wicked Weed customers felt betrayed by the harvest. These regular patrons were concerned about organizational and production changes that might occur as a result of the sale to a major corporation – Anheuser Bush. Wicked Weed patrons viewed their exit strategy as a departure from Asheviile’s “local” brewery scene.
A Strategic Sale can include maintaining the current management team, which I believe was part of the negotiated terms between Wicked Weed and Anheuser-Bush InBev. In fact, InBev’s approach has been to partner with local craft breweries to increase the corporations high-end production of craft brews. Maintaining a local feel, by keeping the current management team in place, seems to be their strategy for succeeding in the craft brewery industry.
A strategic sale is a positive exit strategy, and the buyer is “typically and industry player that will pay value beyond what the cash flows might suggest,” as Amis and Stevenson point out on page 297. However, the customers don’t always agree with these types of strategic sales as mentioned above. In fact a Business Insider article related to the sale of Wicked Weed to InBev quotes one customer as saying, “What a bunch of sell outs. For shame,” one Instagram user commented. “Just had to go after the money and not give a damn about anything else didn’t you?”
This same article suggests that some of the local distributors might refuse to sell the beverage becasue it’s no longer seen as a local company.
However, this may impact the company on a small scale, Anheuser-Bush InBev understands the benefits of this type of purchase on future the growth of Wicked Weed.
It’s interesting to think about harvest from a corporate standpoint; especially, when many communities are focusing on supporting local companies including food grown and harvested locally. However, just as Wicked Weed’s hops are most likely purchased from other states, and its operations are supporting companies outside of the state, the company will most likely now be expanded to production and distribution worldwide.
As founders with sustainability being at the forefront of our mission, my co-founders and I have talked about how this type of strategic sale would be a difficult choice. A sale to an industry exert might help foster a balanced relationship all round, but for us there would be conflicting goals & objectives.
I think, I would prefer to sell to another company or investor that shares my passion for supporting local businesses rather than sell to a corporate conglomerate. I guess that’s why my blog is called sustainable startup.