Young Rich sell out

Australia’s billionaires’ club is dominated by entrepreneurs who have invested a lifetime into building their empires. The likes of Frank Lowy, Richard Pratt, Harry Triguboff, Len Buckeridge and Lindsay Fox could never bear the thought of selling the companies they have spent decades building.

But today’s release of BRW Magazine’s Young Rich edition suggests that many members of the next generation of wealthy entrepreneurs are taking a very different approach.

The list contains 16 entrepreneurs who have got rich by selling more than 50% of their company and, in many cases, walking away from its management – all before the age of 40.

The group includes names like PC Tools founder Simon Clausen (who sold out to Symantec in 2008 for $300 million); PIPE Networks founders Bevan Slattery and Stephen Baxter (who sold to TPG last year); Andrew Barlow and Adrian Giles (who sold Hitwise in 2007); Sportsbet’s Matthew Tripp; and Stuart Marbug and Richard Preen (who sold Internode to iiNet in March).

The willingness of these younger entrepreneurs to sell their babies (often with 10-15 years of starting them) is in stark contrast to the way Australia’s rich business owners have traditionally built their fortunes.

But what is driving the big sell-off? There would appear to be a number of factors at play.

It’s tempting to attribute this shift to the different values Generation X and Generation Y hold. The stereotype would suggest that members of this generation eventually get bored and start looking for the next thing.

Where older entrepreneurs pour their career into a business, Gen X and Gen Y are prepared to have 10 separate careers, and are prepared to chop and change.

There may be something to that, but the underlying implication here is that Gen X and Gen Y lack commitment – and that’s a very hard claim to make about someone who has built a $300 million business.

It’s also tempting to suggest younger entrepreneurs have a more refined taste for the good life. What’s the point of working all your life when you can sell up, kick back and cruise for 40 or 50 years?

Again, there’s probably something to that, but that does ignore the fact that many of these entrepreneurs have gone back into business in one form or another (typically as angel investors or professional directors) or have remained involved in the business under new owners (if only to meet earn-out clauses).

However, perhaps the biggest reason these entrepreneurs are so willing to sell up is the fact that they understand how global markets work and appreciate the value of an exit.

Many of these entrepreneurs who have sold out (and all of those mentioned above) are involved in technology and compete in globalised markets. That brings a very different mentality to the way a business is run.

These young entrepreneurs would have been acutely aware of the fact that while they could build their businesses to achieve a certain level of size and scale, there inevitably comes a point – particularly in the tech sector – where you need to get big, or get out.

In Australia, a young entrepreneur’s ability to get big is limited. Venture capital and private equity funding is scarce, bank credit is limited, the market is relatively small and your ability to acquire or merge with like-businesses can be non-existent.

When the right deal comes, selling out is perhaps the smartest move you can make.

It’s a fascinating and to some extent disappointing trend – seeing our best young businesses bought up is not something to be welcomed.

But there might be a silver lining to all this. Many of the sell-outs are now investing in the next generation of tech players.

Perhaps with the right funding and the right support we will see some of these firms grow into global giants.