Grow or sell? It’s the ultimate dilemma for startups. This dilemma can become even more acute when you’re the CEO of a VC-funded startup. You want to develop your product, while driving sales and marketing, so that the business can reach its full potential, but your VC’s fund has reached maturity and they want you to sell your company to a larger firm. What do you do when your values as a business leader come into conflict with your investors?

That is precisely the dilemma my company,, faced. As enticing as exits can be, it was not the right time — there was so much more we wanted to achieve. When a company finds itself in this situation, it can either bend to the wishes of its investors or the founders and top executives of the company can buy their freedom from the VC fund calling the shots. In our case, we appreciated all they had done for us, but it was time for us, and them, to move on.

The lineup

The VC had thrown down the “time to exit” gauntlet, and we had to implement the board’s decision, but after a lingering M&A process we realized that we, the management, were the best buyer. An management buyout, or MBO, was the best way to see our vision through and serve our customers. But how do you go from a VC funded company to a company owned by employees? Where would we get the funding needed? Could we even convince the VC to sell? And for how much? These were all questions that needed to be resolved before we could become an independently owned company.

Negotiating with the board

The main challenge in an MBO is that the CEO and senior management have an inherent conflict of interest: The CEO is appointed by and works for the board of directors and suddenly, he/she is a potential buyer who needs to negotiate with the Board. The CEO needs to remain committed to the board’s interests and maintain “business as usual,” even though the better the company performs, the higher its valuation and the more difficult it becomes for the company’s management to buy it. Regardless, it’s critical that management keep in mind what they are being paid for: running the company for the benefit of its shareholders.

In our case, that meant we had to run the company effectively, while also supporting a very time-consuming M&A process. I continued to present the company to potential buyers, but once I became a potential buyer, I stayed away from valuation negotiations, leaving that to the chairman of the board. Having an active chairman at that point really helped us maintain a good working relationship with all the stakeholders despite the growing conflict of interest.

Read the rest of the article at VentureBeat