Harvesting Your Investment

Exit and Harvest

Entrepreneurship, like any investment, requires definite strategies for exit and harvest at the appropriate time. If these are not planned for in advance there is risk of forced departures or overstaying at the helm to the detriment of the organisation. A number of the entrepreneurial bankers were forced out of their investments through poorly crafted and ill- intentioned regulations.

Initial public offering of shares of the company is a way of harvesting a portion of the initial investment while growing both the organisation and the value of the entrepreneur’s wealth. A significant number of banks listed on the stock exchange and reaped enormous benefits. The advantage of this is that one reduces one’s shareholding while reaping from the investment. The harvested investments can be re-invested in other projects rather than having all wealth tied up in the venture.

Another exit mechanism is through sale to family members (succession), to management as a buy-out or buy- in transaction, or as a trade sale to outsiders. CFX was a bureau de change which bought over the merchant banking licence of Unibank to create CFX Merchant Bank. From this transaction the founders of the failed bank harvested their investment and exited banking.

Some financial institutions were liquidated due to liquidity and insolvency challenges they faced. However liquidation normally indicates a failure by entrepreneurs to manage the preceding challenges that emanate from entrepreneurial growth. This results in the loss of the investment capital. A well managed entrepreneurial venture can provide an exit strategy that is beneficial to the original shareholders.

A final harvesting or exit strategy is through controlled growth due to a strategic decision to consolidate and focus. This strategy is currently being embarked on by most banks in Zimbabwe. The Central Bank had instituted a floating USD linked capitalisation structure for banks. This forced many banks which held numerous banking licences to consolidate their sister companies into commercial banks. This would allow them to release the other licences, e.g. merchant banking, discount house, and convert these into divisions under the commercial bank.
Others have had to make decisions to quit certain market segments completely and focus on core business dependent on their core competences. Others have had to reduce their involvement in regional markets, initially in a bid to build the local institutions. Later the central bank de-linked the issue of capitalisation – but it had already affected the strategic thrust of many banks. This highlights the challenges of ill considered and frequent policy reversals.

This posting demonstrates the need for an entreprenurs to have back of his mind the way he will exit his investment.

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