Professor of Entrepreneurship
Every scale-up entrepreneur will, at some point, run into this important dilemma: is it time to sell the company – or is it better to continue to scale and build an even larger business? But maybe the right question is not whether to sell or scale – but rather: how long do you keep scaling before you decide to sell? This was the topic of the keynote speech at our 2024 Mergers, Acquisitions and Buyouts Conference. Before his speech, Thomas Hellmann - DP World Professor of Entrepreneurship and Innovation at Saïd Business School, University of Oxford – had an interesting talk with Vlerick Business School’s Professor of Entrepreneurship Miguel Meuleman.
Thomas Hellmann starts the discussion by emphasising that the scale vs. sell dilemma is a good one. Companies facing this decision are doing well, compared to companies having to choose between surviving or closing down. Nevertheless, the choice to scale or sell is quite significant as it determines the company's future direction for its founders, its employees, and the local economy.
Every scale-up entrepreneur will, at some point, run into this important dilemma: is it time to sell the company – or is it better to continue to scale and build an even larger business? Professor Miguel Meuleman (Vlerick Business School) interviews Professor Thomas Hellmann (Saïd Business School).
There are many reasons and pressures weighing into the decision, but selling is by far the easier option, says Thomas. When you’ve worked for years on end to build your company from scratch, accepting a check is a safe bet. Deciding not to sell, however, can also result in failure. That’s why entrepreneurs struggling with this decision need a support system – and certain economic structures need to be in place for them to roll the dice again and continue to grow.
Not solely the founders, but also the investors, the board of directors and the broader ecosystem play a role in whether companies continue to pursue an ambitious growth path or get acquired and integrated into some larger entity. Many investors – and especially venture capitalists – have a strong temptation to sell, as they are under huge pressure to show their returns on investment. However, selling too fast might create exits with a lower value. As scaling may exceed the current 10-year venture capital model, this choice requires courage and patience from the investors.
What are the chances of succeeding? What is the funding available to continue? What's the access to talent? How can we build the right management team? Is the right infrastructure in place? All these challenges weigh in on the decision of whether to accept an acquisition offer. Thomas raises the need to build a European scale-up ecosystem that offers the support that’s needed to allow these companies to achieve their full potential.
Advice for entrepreneurs
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The decision to scale or sell depends on the risk-return profile, with scaling having higher returns but also higher risks. It’s difficult to determine which decision delivers the highest returns. There are entrepreneurs who scaled and lost it all – and there are others who would have missed out on building a bigger business if they had sold.
Industry, too, has an impact, with non-tech and low-tech industries having more established scale-up environments. High-tech companies often operate in very competitive and global markets – and within high-tech, there are huge differences. Climatech poses a much bigger challenge for scaling as it’s a fairly new industry, very much focused on hardware. Whereas in biotech, the scale vs. sell decision is well-defined due to clear metrics and fixed steps in building pharmaceutical drugs or medical devices.
Thomas believes you always want to welcome foreign investors as they help and bring in capital. The story is more nuanced for foreign acquirers, as it sometimes looks like they’re just taking the company out. But our start-up system relies on good exits, bringing resources into the ecosystem. If we disinvite or discourage foreign acquirers, we might be killing so much more. In order to make sure that talent does not just walk away, we need to encourage patience. When Google bought DeepMind, they initially wanted to move the company from the UK to Silicon Valley, but the founders refused. In the end, Google allowed them to stay because they saw the advantages of the local ecosystem in building the company further.
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