The dialogue in the video and transcript below is for informational purposes only. The opinions expressed are those of the participant only and do not constitute investment advice or a solicitation to buy or sell any security. Past performance is not indicative of future results. Investment banking services offered through Crewe Capital, LLC, member FINRA/SIPC.
Takeaways
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Always Be Prepared to Sell: Run your business with an exit in mind, even if you don’t plan on selling immediately. An optimized, de-risked business that consistently generates cash is highly valuable and can give you maximum leverage.
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Track Your Industry KPIs: Business owners should identify and track 10 to 20 industry-specific metrics (such as CAC, net margin, customer churn, and net retention score) quarterly to see how they impact equity value and compare to peers.
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Start Early for Tax and Succession Planning: Exit preparation takes time. For example, maximizing the federal tax benefits of QSBS (Qualified Small Business Stock) can take up to five years, and a proper succession plan must be established early so the business doesn’t completely rely on the founder.
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The Biggest Deal Killer is Missing Numbers: A transaction typically takes three to six months. Missing your financial targets during this due diligence phase is the easiest way to kill a deal, as no buyer wants to “catch a falling knife.”
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An Exit is a Full-Time Job: Running a sales process while simultaneously running a business means taking on two full-time jobs. Hiring a trusted investment banker or advisor is crucial to keep the process moving without letting your operational numbers slip.
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Premium Valuations Require Specific Elements: To command a premium price, a business should have a strong org chart independent of the founder, greater than 100% net retention, predictable revenue, and mission-critical (“must-have”) products or services.
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Consider Partial or Minority Exits: Exiting doesn’t always mean handing over the keys and walking away. Strategic minority deals allow operators to take chips off the table, de-risk their personal finances, and secure growth capital while still retaining majority control.
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Prioritize “People First” and Balance: The most successful and enjoyable deals happen when both buyers and sellers treat each other fairly and work as a team. Furthermore, founders should focus on scaling all facets of their life, ensuring that physical health, relationships, and personal happiness are not entirely sacrificed for financial success.
Interview Transcript
Steve: All right. I am here with Mike Bennett and he is the managing partner and founder of Crewe Capital. How’s it going, Mike?
Mike: Great, Steve. Thanks for having me.
Steve: Yeah, I’m excited to get into some tactical advice here. But before we get there, let’s talk about you. Let’s talk about your background and how you got started.
Mike: Sure. So I was an entrepreneur in college. During my undergrad, my dad was an entrepreneur, and it’s what I knew. I started a business to pay for school. I was studying chemistry, I thought I was going to be a dentist, and one thing led to another and my clients were investment banks. I remember first meeting with some investment banks, learning what they did, and feeling like they made the world go round. I immediately knew I wanted to be a part of that and that finance was a lot more interesting to me. It made more sense in my mind than chemistry. So that was my first foray into finance. I ended up switching my major and then I took an investment banking job out of undergrad. I started initially in real estate investment banking and did a series of other services within investment banking until ultimately startingmy own firm.
Steve: Nice. Very cool. So let’s just get right into it. I think with a lot of people listening to this, they’ll be curious about your take on getting prepared. So when is the right time to prepare for an exit and what are the best first steps that people can do?
Mike: Great question. I don’t know if there’s a right or a wrong time. I guess the wrong time would be gettingprepared when you need money. You want to be prepared before you need money or before you want to sell. The way I advise my friends and clients is the way I do it, which is you should always be ready for a sell because if you’re always ready, then your business is optimized. If it’s optimized, it’s super valuable and actually would make the decision of whether you want to sell it really hard. If it’s de-risked and ripping cash, it’s a business that’s going to be highly valuable and hard to depart from.
What I like to do is run the business as if you’re always thinking about a transaction, even if you never contemplate a transaction. You should know your industry KPIs, and when I sit down with a business owner, I identify their industry and then we create a dashboard of 10 to 20 industry-specific KPIs. You need to know your fully burdened CAC, your net margin, your customer churn, and your net retention score. You need to know all of these metrics and how you stack up industry-wide. As you follow those metrics quarterly and you can see how they impact your equity value, then you’ll know how your business will trade and if it’s going to be attractive and if you’re ready.
To expand on that, if you are serious about wanting to sell, then you should go a step further and actually prepare for a sell, not just psychologically prepare. There is some planning that you need to do. If you want to take advantage of QSBS, that could take up to five years, right? To get the full federal benefit, this depends on the business size, which could help it so that you pay almost no tax or no tax on your federal capital gains. There are real things you need to do before an exit depending on what you’re trying to accomplish.
So, one, run the business as if you’re wanting to sell it. But two, if you’re wanting to sell, the sooner the better. Meet with an investment banker that you know, like, and trust. They’ll help you understand your specific dashboard on what you’re going to be measured against and where you may be deficient. So your org chart might be lacking a CFO. If you’re a meaningful platform or sizeable business, you should have a really good CFO. If you want to transition out, you better have a succession plan. If your business relies on you, you’re going to have a hard time selling that business if there’s not already a succession plan in place. If your goal is to raise capital, maybe sell a minority, and part of your use of proceeds is for inorganic growth, then you better have proven that inorganic growth strategy. So there are dozens of things. We could talk for hours on what to do to prepare and how long to prepare in advance, but the sooner the better. If you haven’t been through a process, I’d recommend meeting with somebody who you know and trust as an advisor as soon as possible to help you prepare.
Steve: A lot of good tactical things there. In terms of mistakes, my favorite topic. What are some mistakes that you have seen operators make when it comes to preparing and timing for an exit?
Mike: I think there’s several mistakes. One is not making sure you’ve got all your personal planning in place. The tail can wag the dog. If you don’t know what success looks like for you before you sell, it’s going to be hard to know if you’re successful. So that kicks into the QSBS and other estate planning considerations. Do you have your assets outside of your trust? Do you know what number you need? Business owners can bereally good at living in a business and pulling from it if they want to buy a boat or go on a vacation. When it comes to living out of a portfolio, you need to make sure that you’re prepared for that. So, I’d say a mistake is not being personally ready.
The second is making sure that you understand what an exit looks like for you personally. Do you anticipate staying on with the business? If so, for how long? I always recommend clients be very flexible with that. If you know you want to be done working in five years, you need to start succession planning now. A new owner is likely going to want you to stay on board because it de-risks the process for them. Then you’re going to figure out timing on whether you stay on for the next buyer. There’s a lot of things. The key pointis if you get the right investment banker, they’ll make sure that you don’t make any big mistakes before going to market. You need to make sure there won’t be anything that will trip you up in a process.
Business owners frequently call us when they think they’re ready, instead of calling us early to get prepared and achieve the most optimal outcome, so we’re not duct–taping things together mid-process and you can enter it from a position of strength.
Another mistake would be missing wind behind your sail in an industry. For example, if you were in software and you didn’t take advantage of this past decade, and now SaaS valuations might be getting hurt a little,depending on the category, because of the threat of AI, you missed a window. If you’re contemplating a transaction and you’ve got some tailwinds, it would be smart to capitalize on tailwinds and high multiples. High multiples typically don’t stick around forever. It often depends on what is happening in the economy and the roll-ups in private equity. If there is a lot of demand, you’re going to see multiples rise.
No business owner is intentionally trying to do this, but the biggest deal killer is not hitting your numbers. It may take you three to six months to get a deal done and if you’re missing numbers during that process, it’s going to be almost impossible. No one wants to catch a falling knife. Make sure you are working directly with your banker so you don’t have any big issues glaring at you. Also make sure that you can hit your numbers during a process or else it’s going to be very hard. That’s probably the biggest trip up.
I think sellers can also be naive, depending on their size, of the time it takes. It’s a full-time job. That’s why the best companies in the world hire the best advisors to help them so that they can keep their eye on the ball and not miss their numbers.
Steve: Yeah. It’s well said highlighting that it is a full-time job and making sure you hit your numbers. You effectively take on two full-time jobs because you have to run the company and you have to run the process. It can become overwhelming for a lot of people. So hiring an advisor, somebody to sit in the passenger seat to help you is really crucial. I’ve talked about that a lot in the past. I think when it comes to valuations, you briefly talked about multiples. I think it used to be grow at all costs in the 2020 era. It was often focused on top line growth and burn as much as you can, but then it quickly changed. What are some things you’re seeing in terms of trends that matter most when it comes to valuation?
Mike: Well, some trends that you’re seeing now are defensible and scalable cash flows. AI has a lot of buyers being a little bit more cautious. But the generic answer is you got to have a really strong org chart to command a premium valuation. If your business isn’t a platform, but has a CFO, COO, vice president ofsales, other leadership, and is not reliant on the founder, which is really key, that will help. You should have a greater than 100% net retention. You need customers that are not only staying, but they’re growing with you. The revenue has to be predictable. You should have mission-critical products and services, something that’s not a nice–to–have but a must-have as a product. If you have proprietary technology, differentiated distribution models, strategic partnerships, repeat purchasing power with customers, limited cyclicality, and size, those are all important things that can command a premium valuation. As I mentioned earlier, if your industry KPIs stack you up as a premium to your peer group, you’re hitting all those indicators, and you have a strong growth rate, good margins, and compelling KPIs, you will likely command a premium valuation.
Steve: For sure. When it comes to the multiple, we talked about how to prepare. You mentioned it briefly around not catching a falling knife. I think that’s a very good saying. When it comes to timing, I think everybody’s different, every business is different, but in the past, what have you seen is the right time to exit?
Mike: The right time to exit is a good question. We work with so many founder-led businesses, family-like businesses, and generational businesses, and it’s going to be different depending on what the cap table looks like. If you’re a private equity-owned business, you’re selling when it’s at the end of the fund cycle, most likely. You have to. But if you’re a founder-owned business, you have to define what success looks like for you. What is success? Everyone’s going to be different. Is success making as much money as you possibly can, or is success maximizing the industry opportunity and what your business can do and growing the pie? Is success making sure that your leadership team and your employees have opportunity? Sometimes you’re going to do a transaction so you can retain talent, which can provide a long-term incentive plan for employees to continue to grow and reach their professional goals. Are you trying to build a business to monetize so that you can retire? I mean, there’s infinite reasons to do a transaction.
The right time involves clearly defining what success looks like for you and then timing it when you are ready and market conditions are ready. If you have a consumer brand and you went to market the day after Liberation Day when Trump announced tariffs, that’s terrible timing. So you want to make sure that your business is ready, that you’re personally ready, and that the market is ready. With that being said, there are different goals for different people. If you have a definition of success and you work with your personal advisor and your investment bankers, then once you’re prepared is the right time to exit.
Steve: I think that everybody is so different. There’s so many moving parts, there’s different macroeconomic things taken into account, and ultimately it comes down to what the end goal is. So I think you may have touched on it briefly there, but partial exits. Partial and full. How should entrepreneurs think about this? I’ve thought about it a lot. I know a lot of people that I’ve talked to have thought about it. Can you share the framework to think through a partial exit?
Mike: Yeah, partial exits should be very strategic. Now, don’t get me wrong, most sell-side mandates when you’re selling your business are partial because most, I would say 95 out of 100, require you to roll over equity if it’s a decent-sized business. When I think of a partial exit, I’m thinking more of a minority deal.I’m working on a minority deal right now and it’s an incredible deal because the operator knows that it’s a really good time in this industry because multiples are high. They can command a high valuation, sell a minority, retain control, and grow faster than they could organically. It’s not an option that’s available for everybody because there are less investors in minority deals than there are in majority deals. Most strategics don’t want a minority and most private equity is buyout. There are growth equity and strategicbuyers that do minorities, but they’re definitely in the minority.
You must have the right business in order to do a minority, and there is a difference between a primary and a secondary. A primary is you’re putting capital on the balance sheet. A secondary is you’re taking it all home, which inherently is a higher perception of risk for an investor. If you’re anticipating or contemplating doing a minority transaction in a secondary, then you must have a really strong business to get that done. But it can be incredible, you know. The business I mentioned wants to grow nationwide, they have had 30% year-over-year growth for 10 years, they retain 100% control, they keep their brand, they have a strong valuation, and they get to take chips off the table and can grow faster than they otherwise would be able to without having to give up control. Depending on where you are in your career, if you’re not at the end of the road and you still have a desire to grow with the business, then a minority can be a phenomenal opportunity. There’s also dividend recaps, which can provide opportunities to take chips off the table in a tax-efficient way by not selling the business.
There are a lot of opportunities that your investment banker can socialize with you based on what you’re trying to accomplish. It’s not always like you are selling your business, and rarely do you hand over the keys and walk away. That’s not realistic.
Steve: You mentioned a couple types there. I wanted to get your opinion personally of what your favorite deal structure is. What’s the most creative deal that you’ve really enjoyed being part of?
Mike: That’s a really good question. I think my favorite deal is working with people who are fun to work with. They are not all the same. I think it’s people first, and maybe that’s not what you’re looking for, but people who are nice, enjoyable to work with, and are grateful. If you’re looking to hire an investment bank, be kind, be likable, and be a team. It’s such a team sport. To get anything done, you’re working as a team.
One of my favorite deals I did is with a company called PACS. They’re now public and their ticker is PACS. I got hired to work with them when they were about $50 million in enterprise value. I helped them clean up their cap table from several financings and think through a growth strategy, both organic and inorganic. We implemented that strategy and they started growing. We helped them digest several large acquisitions and then they went public. I sat with them in their corner as they interviewed the lead investment bank and put together a syndicate, and was able to sit on their side when they grew from about $50 million in enterprise value to over $5 billion. That was a great and fun deal to work on because it required seven years of strategy, several capital events, and the work we did in the first couple of years impacted the next couple of years. I had to make sure that it was the right financings and the right structures so it wouldn’t impact negatively the ability to raise capital in the future.
They have been a phenomenal client of mine and now I work with them on their personal balance sheets when they’re making and buying investments for their portfolios. I don’t know if that’s the right answer. I love a deal that’s fair. I love it when the buyer and seller get what they want. I like it when no one is being taken advantage of. I like it when the market prices a deal fairly and that’s where the deal gets done. I like it when my client’s rollover equity is pari passu with the buyers and there’s not any kind of pref on the buyer’s equity. I like it when management teams are taken care of and the culture remains intact and is only improved. When I talk with clients several years later, they’ll say things like, “This is the best thing that ever happened to me for x, y, and z, what you said came to fruition, and my rollover equity is worth more.” Those are things that make this job really fun.
Steve: Nice. I like that. The people, that is what all this really is, just people going in one direction, calling it a business, and other people buying it. So that’s great. And that leads us to the finale. Knowing what you know now, what would you tell Mike 10 years ago?
Mike: Man, Steve, that went by fast. Maybe I just talk too much. But 30 minutes is up. So the question is, what would I tell myself 10, 20 years ago?
Steve: Uh-huh.
Mike: Oh man. I don’t know that I would change much because I love where I am, and it was a brutal road of hard work and felt uphill the whole way. But the only thing that I would change would be I’d probably tell myself to be patient. As an entrepreneur, I was always anxious about every step of the way, wanting to be somewhere bigger, faster. I’d say just enjoy the process, be patient, stay committed, always do right by clients, find joy in the process, there’s really no finish line and continue to have fun. I think if you stop having fun, you’re probably not going to have as much success. If you don’t have as much success, you’re not going to be as happy. I don’t know. That’s a terrible answer, but if I was talking to myself 10 years ago, I’d say stick with it. You’re going to love where you get in 10 years and enjoy the ride.
Steve: Nice. I like that. The journey is the destination. I think that’s a very common one, and a lot of times it takes some reflection to realize that and seeing an end or an end to a business in sight, sometimes that can help you realize like, oh yeah, this journey was wild and fun.
Mike: Yes, exactly. Seeing so many people go through it, it’s helpful to understand that better and you realize that it’s great to reach your goals. But if your goal is being happy, you should be happy during the process and scale all facets of your life. Don’t sell all your time and don’t give up everything to be just financially successful. Make sure that you’re personally successful, like your relationships are successful, you’re spiritually successful, and you’re physically healthy, you know? Keep an eye on scaling all facets of your life and then you’ll truly be happy.
Steve: For sure. Well, that takes us to Crewe. Tell us about it and where people can learn more.
Mike: Yes, Crewe is an investment platform where we have private wealth management, family office, investment banking, an alternative investment platform, and a foundation that helps administer charities for our clients for their philanthropic endeavors. The website is crewe.com, spelled c-r-e-w-e. So crewe.com and you can find me at ib@crewe.com.
Steve: Awesome. Well, wherever you guys are listening on iTunes or Spotify, links that Mike mentioned will be in the show notes. Thank you so much for coming on and sharing all your wisdom, Mike.
Mike: Thanks, Steve. That was a pleasure. Appreciate it.
