Takeaways from Black Tech Week – ‘Monetization’ Doesn’t Always Mean Selling the Company

Over the past several years, Black Tech Week has grown in stature and become more nationally recognized, drawing in business owners from across the country.

It was purchased last year by Lightship Capital, an economic development organization based in Cincinnati that aims to develop and fund remarkable talent while catalyzing emerging ecosystems, specifically for founders of color, LGBTQ+, women, and people with disabilities. Each of the identified groups that Lightship Capital supports is underserved in the wealth management industry and the funding arena.

Black Tech Week convened last month with over 60 available workshops, networking events, and topics ranging from how to secure funding to navigating your next move. Over 1,000 Black technology professionals spent roughly a week in Cincinnati, making new connections, learning new skill sets, and strategizing potential monetization opportunities. As many work hard to keep pace with technology’s evolution, discussions centered on how business owners need to pivot to meet the needs of clients or general consumers — they always have to stay on their toes.

Economic uncertainty and the pace of innovation have led many minority business owners and others to consider new options for exit planning, which includes the effective strategy of partial monetization. Private equity, ESOP, and other exit strategies have been used to create partial monetization events. For companies who project a positive revenue trajectory and are not ready to fully exit their company, partial monetization can help meet immediate business needs and the entrepreneurs’ plans. The exit planning community has seen an uptick of partial monetization with minority and woman business owners. Doing so allows these entrepreneurs to begin making long-term investments on their personal balance sheets.

Taking risk off the table

As mentioned, in recent years, especially in the Black entrepreneur community, we are seeing an influx of partial monetization events. Simply put, business owners are learning that they can take some risk off the table while industry multiples are strong, and begin their long-term wealth planning while still growing the company and aiming for the ultimate exit in future years.

Each entrepreneur has a unique set of goals and aspirations. Incorporating a certified exit planning adviser (CEPA) into your professional team of advisers will help to prepare for the most favorable monetization and, even more importantly, structure the liquidity event based on tax efficiency, long-term legacy planning with wealth transfer strategies, and of course, growing that new asset base to provide for the next generation.

When the future is uncertain with a potentially lower selling price, business owners can mitigate risk and ride through economic uncertainty by selling part of their company. Where a recession might last 18 to 24 months, it may take a long time for businesses to get back to pre-recession revenues. We saw this same pattern in the COVID-19 pandemic.

Businesses are still trying to regain footing at pre-pandemic revenue levels. By selling a percentage of the business, there’s less long-term vulnerability. A business owner, for example, whose company generates $30M could be entirely “cash poor.” Using this strategy, business owners can progress with their company but take some chips off the table to diversify their risk profile and begin to build a bigger asset base — all with their legacy in mind.

The risk of selling at full value

Corporations have been incorporating supplier diversity initiatives since the 1960s. Supplier diversity refers to the use of minority-owned businesses as suppliers. It is also one of the ways that corporations display business social responsibility.

Why is this relevant? Minority-owned companies can obtain lucrative relationships with these corporations that have a mandate to spend with minority suppliers. With a full liquidity event, revenue sustainability concerns may arise from a potential future non-minority buyer. This oftentimes translates to a lower offering price to purchase the minority-owned company. In exit planning, we discuss with our clients the importance of customer diversification to help mitigate this risk — but the risk still exists, nonetheless.

Black Tech Week made clear that as the market landscape continues to evolve, business owners have had to make numerous pivots toward a technology-forward strategy to meet the demands of their clientele and the expectations of the general consumer for brands across all industries. This has forced many business owners to reestablish themselves within their practice to properly align with the changing times.

For minority business owners specifically, this has also shed light upon the growing need to diversify their legacy planning and ensure they sell at the right time and in the right way to maximize their business efforts. Also, the ability to structure a liquidity event in such a way that supports the entrepreneur is also how we turn the tide on the 70-year stagnation of the racial wealth gap by providing a vehicle for financial freedom.

Sheila Simmons is vice president and financial advisor with the Executive Wealth Partners at UBS.