The EIR Corner

What is a lifestyle business and why don’t investors find them attractive?

A lifestyle business is typically small and operates in a modest market that is growing slowly. Its founder wants to run the company for the foreseeable future and has little interest in relinquishing equity or management control. It is self-sustaining, profitable and has little need for outside capital investment.

Although a lifestyle business can be comfortable and lucrative for its owner, it is not compatible with the mission of a venture capital firm. VC’s must achieve a ROI above what is available in public markets and return invested capital to the limited partners after a specified period of time (generally ten years). When you also consider the fact that not all portfolio companies will be successful*, venture capitalists must look for opportunities that have the potential to return 5 to 10 times their investment within 5 to 7 years. That does not fit the profile of a lifestyle company.

Venture capitalists need companies that are uniquely positioned to satisfy a pressing need in a significant market and led by entrepreneurs that understand how capital and advice can scale a business to a level not otherwise attainable. If this describes your business, a conversation with a venture capitalist might be worthwhile.

* According to the National Venture Capital Association, 40% of venture backed companies fail, 40% return modest amounts of capital and the remaining 20% produce high returns.