Exit Strategies for Business

Depending on the stage of a company’s development, various startup businesses have different financial requirements. In the first few years of a startup, venture capitalists, business angels, and other types of investors don’t often seek an exit, but between years 5 and 10, they may start to get concerned if an exit policy is nowhere in sight. We often learn about fundraising for startups when they are in their growth phase but rarely talk about their exit policy. But the truth is while most startup businesses dream of becoming the next unicorn, the investors start looking for an exit after the initial few years. When investors pump money into your businesses, they only have one goal: to receive an adequate return on their investment. So, what exit choices and tactics are available for businesses and investors? Let’s find out.

Startup Acquisitions

Selling the business to a larger one for a profit is the primary exit strategy for entrepreneurs. Investors are in the same boat. Key executives and workers from the startup will remain at the firm until they cash out their shares when the buyer acquires the firm. Exits provide startup investors with money, which they can subsequently give back to their limited partners or to themselves.

IPO flotation

There comes a point for mature and established technology companies where raising finance from VCs or private equity firms is no longer an option. What follows, then? An IPO. The initial public offering, or an IPO, is the process of fundraising wherein a firm begins trading on a stock exchange and sells a sizeable portion of its shares to raise funds from institutional and non-institutional investors. These big businesses are what VCs want to invest in since they frequently deliver significant amounts of funding to all parties concerned (founders, early employees and investors).

Mergers and Acquisitions

Big businesses searching the market for complementary capabilities frequently look for M&A deals as a form of exit. Purchasing a smaller startup is a better product development method than developing it internally. These recent mergers and acquisitions have acted as the strongest exit strategies for businesses as they can maintain control over price negotiations and set their own terms. Businesses can also take m&a consulting to streamline merger processes and ensure a high valuation.

Milking the Cow

When startups are raising capital for businesses, not all of them can obtain capital from VCs and business angels (bootstrapping is an option). Similarly, not every startup needs to sell itself to a larger firm to generate a profit for its founders, staff, and investors. Businesses that start with a great startup idea and can build a strong business model and scale may decide to remain independent and reinvest their revenues in the firm. A portion of those gains may also be divided as a dividend among investors, giving liquidity to third parties while avoiding the public markets and the associated liabilities.

So, Perfect time for selling a startup?

This topic is frequently posed at conferences and in-person meetings between investors and startups. How soon should I sell my business? When should sellers start looking for buyers? When should I, as an investor, begin seeking a return on my investment?

The fact is that there is no single answer to all of the questions mentioned above. According to common sense, entrepreneurs should seek an exit when their growth rates are strong rather than when they are highly profitable if they want to maximize their selling price. Both sides must strike a balance since startups want to sell for as much money as possible (as do investors), while buyers want to spend as little money as possible.

Every investor and entrepreneur should think about the specifics of their projects and base their decisions on those. There is no magic recipe, but it is a given that business owners and investors will eventually search for a way out.