Several years ago there was significant discussion around the pros and cons of entrepreneurs taking chips off the table. Taking chips off the table is another way of saying that the entrepreneur sells some of his or her equity before selling the entire business. Generally, the idea is that by putting some money away now, especially if it’s a decent amount, pressure is removed to sell the whole thing early and instead go for building a much larger business.
I’m a fan of entrepreneurs taking chips off the table for several reasons:
- Having 99% of your assets tied up in one company creates pressure to take the first good offer that comes along
- Spousal and family stress during the entrepreneurial journey can be partially alleviated when things like the house and college for the kids are completely secured
- Investors that buy some of the entrepreneur’s equity show faith in the venture and the opportunity for it become significantly more valuable
For investors, one of the major considerations when buying equity from an entrepreneur is ensuring that the entrepreneur still has enough equity to be sufficiently motivated going forward. There’s no exact science here but it’s a topic of consideration nonetheless.
For successful startups with meaningful value creation, entrepreneurs would do well to take some chips off the table.
What else? What are some other reasons entrepreneurs should take chips off the table?