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Entrepreneur
2 days ago
- Business
- Entrepreneur
5 Good Reasons Why People Buy a Business
When in the market to buy a business, make sure you are clear on the reasons you are buying the business in the first place. Opinions expressed by Entrepreneur contributors are their own. Many entrepreneurs go down the path of buying a business to help jump-start their business-building efforts. But oftentimes, they don't give enough thought to "why" they are buying the business, and the long-term goals they are hoping to accomplish from this investment. Unless they are 100% clear on the "end game", they could get themselves into a situation that is not what they intended, and it could be too late to fix it once they close on the purchase. These five reasons will help you assess your acquisition goals before you get started hunting for targets, so you don't repeat the mistakes that many other entrepreneurs have made by not doing sufficient homework upfront. 1. You need a high return on investment Like any other investment, you want it to be worth as much as possible at the time you are ready to sell it. This path most typically involves buying a business at a low price, increasing its value over the next 5-10 years through increased sales and marketing efforts or other margin enhancement techniques, and then selling it for a much higher value down the road. That higher value typically comes from two sources: the higher profits of the bigger business and the higher sale multiple of earnings, as bigger companies are typically sold at higher sale multiples than smaller companies. But the intent here is to buy and sell the business — that is the intent from day one. It may or may not require you to raise outside capital to assist you with the purchase or your scaling efforts. If all goes well, you sell the business at 5x-10x the price you purchased it, and that is when you get your "big payday" as a shareholder. Related: Is Acquiring a Business Right For You? Here's How to Know If You Should Buy a Business or Start From Scratch 2. You need current recurring cash flow In this category, it is less about growing a business and more about "milking it" for recurring cash flow from whatever size the business is today. Here, it is less about shooting for the highest long-term ROI possible and more about driving the highest near-term annual return on invested capital. These investments can be things like buying a car wash, a strip mall to rent or a restaurant franchise where you are hoping to drive 10-20% annual returns on your investment. This is basically a more hands-on alternative to investing in the stock market or other more traditional investment vehicles. It may or may not require an investor partner, like a family office, that is also looking for current recurring cash flow. This path is preferred if you need current cash and are not planning to reinvest annual profits into the future growth of the business, as you were doing in the first category. 3. You are creating a family legacy In this category, there is simply one goal: owning and operating a family-run business that you can hand off to future generations. It could come in the form of either of the first two categories above, with one primary difference: you would not want to take any outside investors, as they will require an exit strategy down the road and may require you to sell the company to achieve that goal, which defeats of the whole purpose of ending up with a business you can hand off to your family members. The other major difference here is that now there may be multiple opinions around the family dinner table in terms of what types of business they would enjoy operating. So be sure to toss around those mutually acceptable ideas as a group, before you get started, so there are high odds the next generation will enjoy working in the business and will want to take it over when the older generation retires. Related: 5 Factors You Must Consider When Buying an Existing Business 4. You need passive income Another type of business you can buy is one that comes with very little work required by buyers in terms of operating the company. Businesses that basically "run themselves". This could be things like buying a parking garage, or a business that places vending machines in retail locations, or a business that comes with a general manager who will be doing the majority of the work. So, as you are assessing which business to buy, figure out how much time you want to personally be investing in it, as there is a wide range from 5 hours a week to 50+ hours a week, depending on which business you end up buying. Related: 8 Passive Income Ideas That Are Actually Worth Pursuing 5. You simply need a job This last category is one of necessity. Sometimes people have a hard time getting hired for a job, and they need a salary with which to live. Oftentimes, their solution to that is buying a company that is large enough to afford them a salary or other annual distributions that can cover the costs of living. It may or may not involve having investor partners, depending on the size of the company. But if you take on investors, just remember, you may be looking for another business to buy in 5-10 years, after your investors require you to sell the business to enable their exit down the road. If you don't want that risk, don't take on new investors. So, as we have discussed, there are many different reasons for buying a business. Make sure you are 100% clear on the reasons you are buying a business, and incorporate the learnings above during your evaluation process, to prevent you from getting into a situation where you did not fully understand the consequences when you started. Good luck and happy hunting!
TechCrunch
23-05-2025
- Business
- TechCrunch
Khosla Ventures among VCs experimenting with AI-infused roll-ups of mature companies
Venture capitalists have always focused on investing in companies that leverage technology to either disrupt established industries or create entirely new business categories. But some VCs are starting to flip the script on their investing styles. Rather than funding startups, they are acquiring mature businesses –such as call centers, accounting firms, and other professional service firms—and optimizing them with artificial intelligence to serve more customers through automation. This strategy, often likened to private equity roll-ups, is being employed by firms such as General Catalyst, Thrive Capital, and solo VC Elad Gil. General Catalyst, touting this as a new asset class, has already backed seven such companies, including Long Lake, a startup that scoops up homeowners' associations in an effort to make the management of communities more streamlined. Since its founding less than two years ago, Long Lake has secured $670 million in funding, according to PitchBook data. While the strategy is still new, a few other venture outfits have told TechCrunch that they are also considering trying out the investment model. Among them is Khosla Ventures, a firm known for making early bets on risky, unproven technologies with long development timelines. 'I think we'll look at a few of these types of opportunities,' Samir Kaul, general partner at Khosla Ventures, told TechCrunch. Interestingly, this PE-flavored approach could be a surprising benefit to the multitudes of AI startups VCs are backing. If a VC marries old businesses with new technology, AI startups wanting to serve these industries would essentially gain instant access to large, established clients. Techcrunch event Join us at TechCrunch Sessions: AI Secure your spot for our leading AI industry event with speakers from OpenAI, Anthropic, and Cohere. For a limited time, tickets are just $292 for an entire day of expert talks, workshops, and potent networking. Exhibit at TechCrunch Sessions: AI Secure your spot at TC Sessions: AI and show 1,200+ decision-makers what you've built — without the big spend. Available through May 9 or while tables last. Berkeley, CA | REGISTER NOW According to Kaul, such access would be helpful when new startups have difficulties securing customers on their own. With the rapid rate of change in AI, the number of startups pouring into the market, and the historically long sales cycles involved in selling to enterprises, such difficulties apply to many AI startups. But Khosla Ventures wants to proceed with caution. 'The companies we're looking at are very unlikely to lose money,' Kaul said, but he doesn't want the strategy to ruin the firm's strong return track record. 'My biggest stress in life is I'm managing other people's money, and I want to make sure that I continue to be a good steward of it.' While Khosla Ventures is starting to 'dabble' in AI roll-up investments, Kaul explained that the firm wants to do a few deals to assess if such investments deliver strong returns for the firm before possibly raising money for some kind of vehicle specifically aimed at this investment strategy. If early bets pan out, Khosla would likely partner with a PE-style firm to help it with acquisitions rather than hire a team. 'We wouldn't do it alone, we don't have that expertise,' he said.
