By Brett Hurll
28th April 2023
As the world's population continues to age, a significant number of business owners are approaching retirement age without clear heirs to take over their enterprises. This demographic shift has led to the emergence of a new breed of venture capital (VC) firms, specializing in acquiring and managing medium-sized businesses. This new generation of VCs has recognized the unique opportunity presented by the vast number of family-owned businesses in need of ownership transition. In this article, we will delve into the reasons behind this trend and explore some examples of VCs that are capitalizing on this burgeoning market.
The Graying of Business Owners
Over the past few decades, the global population has experienced a steady increase in life expectancy, leading to an older and more experienced workforce. The median age of business owners has also risen, with many of them now nearing the traditional retirement age of 65. This demographic shift has resulted in a sizable number of medium-sized, often family-owned businesses with no apparent heirs or successors.
Several factors contribute to this phenomenon. First, many business owners have delayed retirement due to the financial crisis of 2008 and the subsequent economic downturn. As a result, they may not have groomed a successor or may have seen potential heirs opt for different career paths. Additionally, societal changes, such as lower birth rates and a decline in family involvement in businesses, have further exacerbated the situation.
The Opportunity for a New Breed of Venture Capital
These trends have created a unique opportunity for venture capital firms, particularly those with expertise in managing and growing medium-sized businesses. Rather than focusing on the traditional VC model of investing in startups and early-stage companies, these firms have honed in on the growing market of aging business owners in need of an exit strategy.
This new breed of VCs provides the needed capital to acquire and manage these businesses, ensuring their long-term success and sustainability. In many cases, they also bring strategic expertise and industry connections that can help these enterprises overcome challenges, modernize operations, and expand into new markets.
Examples of Venture Capital Firms Leading the Charge
Several venture capital firms have recognized the potential of this emerging market and are actively pursuing acquisitions in this space. Some of these firms include Greybull Stewardship, Blue Sea Capital, and Endeavour Capital.
Greybull Stewardship is a California-based investment firm that specializes in acquiring and growing medium-sized businesses. Founded in 2010 by Mason Myers, the firm focuses on businesses with stable cash flows and strong management teams, often in industries experiencing significant demographic shifts. Greybull Stewardship has built a diverse portfolio of businesses, including companies in healthcare, education, and consumer goods.
Blue Sea Capital is another example of a VC firm targeting this growing market. Based in Florida, Blue Sea Capital focuses on partnering with medium-sized businesses in the industrial and consumer sectors. The firm has built a reputation for its hands-on approach, working closely with management teams to drive operational improvements, accelerate growth, and create value for both business owners and investors. Blue Sea Capital has a successful track record of acquiring and growing businesses in industries such as aerospace, healthcare, and consumer products.
Endeavour Capital, headquartered in Oregon, is a growth-oriented private equity firm that invests in medium-sized businesses throughout the western United States. With a focus on partnering with family-owned businesses, Endeavour Capital has developed a deep understanding of the unique challenges and opportunities that these enterprises face. The firm has experience in a wide range of industries, including food and beverage, specialty retail, and business services.
The Advantages of this New VC Model
This new breed of venture capital firms brings several advantages to the table for aging business owners who are contemplating their exit strategies. First, these VCs offer a viable alternative to traditional exit options such as selling to a competitor or passing the business down to the next generation. For owners who may not have a suitable family member to take over or are concerned about maintaining the legacy and values of their business, partnering with a VC firm can provide the peace of mind that their enterprise is in capable hands.
Second, these venture capital firms bring a wealth of experience and resources to the table, enabling businesses to capitalize on growth opportunities and overcome industry challenges. Their strategic guidance and operational expertise can help businesses modernize their operations, improve efficiency, and tap into new markets. This support can be invaluable for businesses that may have struggled to keep pace with industry changes or lacked the resources to invest in growth initiatives.
Third, VC firms can offer aging business owners the opportunity to monetize their life's work while still maintaining a level of involvement in the company. Many of these VCs encourage business owners to remain active within the company as advisors or board members, ensuring that their knowledge and expertise are not lost in the transition.
Potential Challenges and Risks
While this new breed of venture capital offers significant benefits for aging business owners, there are potential challenges and risks that need to be considered. For instance, some business owners may be hesitant to cede control of their company to an outside entity, fearing that the firm's culture, values, or long-term vision may be compromised.
Additionally, there is a risk that the acquired businesses may not perform as expected under new ownership, potentially leading to job losses, financial strain, or even closure. To mitigate these risks, it is essential for business owners to carefully vet potential VC partners, ensuring that they share similar values and have a proven track record of successfully managing and growing businesses.
As the world's population continues to age and a significant number of medium-sized business owners approach retirement without clear heirs or successors, a new breed of venture capital firms is emerging to address this market need. By acquiring and managing these businesses, these VCs are providing a valuable solution for aging business owners, ensuring the continued success and sustainability of their enterprises.
Firms such as Greybull Stewardship, Blue Sea Capital, and Endeavour Capital are leading the charge in this growing market, offering strategic guidance, operational expertise, and financial resources to help these businesses thrive. While there are potential risks and challenges associated with this new VC model, the benefits for both business owners and investors are significant, ushering in a new era of opportunity in the world of venture capital.