When the business succeeds but the partnership starts to unravel

In the first year after an investor comes in, what usually strains the relationship between shareholders are the decisions no one agreed on before signing.

A family business built from the ground up receives an attractive offer and sells a stake or controlling interest to an investor. The valuation is agreed, the contract is signed, and everyone celebrates. Eight or ten months later, the relationship between the shareholders starts to become strained. How decisions would be made after closing is an issue that is often left out of the discussion, and it quickly surfaces in day-to-day operations. The first year after a transaction is the most critical period in a corporate deal and often the one companies are least prepared for.

The founder has lived through every stage of the business, knows customers by name, and makes decisions based on knowledge accumulated over twenty or thirty years. Much of what seems obvious to the founder has never been written down anywhere. The investor arrives with an investment thesis, a defined timeframe, and a committee to report to, and needs to reconstruct that reasoning in numbers every time a significant decision comes up.

The friction begins with small decisions. An investment that was always considered obvious now requires projections and formal analysis. An expense that had been treated as routine for twenty years becomes a meeting agenda item. Each of these situations seems too small to justify a serious discussion, so no one brings the underlying issue to the table. After a few months, the accumulation has already taken its toll, and the founder begins to feel that they have lost autonomy over what they built.

Generational transition can produce a similar effect, sometimes more slowly and in a way that is harder to identify because family relationships are involved. When the next generation takes on roles that had always belonged to the founder, two different ways of making decisions begin to coexist at the same table. In both situations, the practical question is the same: who decides what, and based on which information?

This type of conflict is predictable, and it can be addressed before it emerges. In practice, only a few definitions are needed. One is decision-making authority: up to what amount management can approve independently, and from what point an issue must be escalated to the board. Another is a written definition of roles, clarifying what each shareholder is responsible for within the operation. There is also the management information package, which both sides need to accept as the single source of truth. A significant portion of the shareholder disagreements we have seen at VBR began with two people defending different numbers for the same operation.

This work is often the first thing to be postponed when a company is growing because its results take time to become visible and are not easily captured in a spreadsheet. The practical effect becomes clear the following year, in how quickly the shareholders are able to make decisions.

As Wesley Figueira, partner responsible for M&A at VBR Brasil, puts it: “A partnership is about coexistence. If no one agrees on how decisions will be made, friction is only a matter of time.”