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The Ripcord Moment

Business owners are today’s American heroes. They innovate, they create jobs, they believe that they can CREATE a better future for their families and our country. So much attention is given the start of a business (the idea, the technology, and the fund raising). Yet much less to the exit – as if it will magically take care of itself. When they do exit the business, it’s a once in a lifetime event – there is no do over! Yet so many are ill-prepared to make the jump.The Ripcord Moment is a podcast focused on learning from those entrepreneurs and their team of advisors who have made the jump and sharing their best ideas with you. So when you are ready for your Ripcord Moment – you can execute and hit your perfect landing. Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.‍

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The Ripcord Moment

Series B Financing as a Partial Exit

September 02, 2021 • Joe Seetoo • Season 1 • Episode 9

“It’s freaky—having people work for you that you never met” — Michael McCrary, founder and CEO of PureSpectrum, a complete end-to-end market research and insights survey platform with the mission of making researchers’ jobs easier. In just five years, the company has sourced over 32 million online interviews. Recently, the company was ranked #21 on Deloitte’s Technology Fast 500 list.

Michael shares his insights in procuring $17 million of Series B financing (growth stage capital). With this explosive growth, Michael used this opportunity to take some chips off the table. He surveyed a number of other entrepreneurs and it was unanimous that he should sell some shares in the process.

Some of the key benefits for Michael were “de-risking” his personal financial plan. From a psychological standpoint, he says it was nice to see some reward for the last five years of work and effort.

Additionally, it helps protect the value of the overall enterprise in case something unforeseen were to happen. He wouldn’t be forced to take a lowball offer due to a scarcity mindset. With personal security checked off the list, he can focus on taking the company to the next level. Michael says that the key is to strike the right balance in the deal structure so that an owner can’t ride off into the sunset. The owner should be incentivized to work.

Unlike many technology companies that partner with private equity firms based in major hubs like San Francisco or New York, Michael partnered with a Minneapolis-based firm. As he explains, there was a better cultural fit and he felt a better alignment of interests. He says it’s not just a quarterly board meeting. You are inviting these investors to be a “fiduciary” to your company. He thought of it like hiring another executive.

Lastly, he shares his two action items for owners:

Tax planning – With tax rates likely to move higher in coming years, Michael strongly encourages owners to do their tax planning well ahead of the transaction. Specifically for lower middle market companies, he encourages them to research Section 1202 of the Internal Revenue Code, which outlines the benefits of a qualified small business stock sale and how to potentially eliminate federal capital gains taxes.
Assemble your team – Michael stresses the importance of assembling your professional management team, specifically your wealth management advisor, estate planning attorney and CPA. These transactions are complicated and you need professional advice. He also says it is critical that they know each other and are able to communicate with one another openly.