Even though nobody wants to think about how a business going to end, exit strategy is a crucial part of your startup since investors are more than likely to ask about your exit strategy.
The answer you give can make or break your ability to get an investment, so you need to have the right answer ready before anyone asks.
Here are 5 different exit strategies that one might use:
1. M&A — merger or acquisition by another company.
A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another. Mergers and acquisitions may be completed to expand a company’s reach or gain market share in an attempt to create shareholder value. The resulting entity will gain complementary skills, economies of scale, new customer sets, and hopefully a larger growth opportunity.
2. IPO — public company initial public stock offering.
An initial public offering or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail investors.
Due to new statistics, now we know that only 16% of venture-backed startups recently used this alternative, due to high liability concerns, demanding shareholders, and high costs.
3. Find a private equity firm or a friendly individual.
This is a similar yet different alternative to M&A, since the result is still your original single company. Yet it is an opportunity for you and your investors to cash out. The buyer has the challenge of scaling the business and managing all the operational growth requirements. Then you can go & kick-off your next startup.
4. Position the company as a cash cow to fund spinoffs.
A spin-off is a new company formed from an existing one. They are common among enterprise businesses, with around 50 occurring in the US alone each year, and are known to often outperform other types of companies.
If you can convince investors that your startup will generate a solid revenue stream, and the market won’t go away any time soon, they may see an opportunity for an even larger return. You can maintain ownership, and even find someone you trust to run it for you, as you focus on spinoffs.
5. Liquidate the assets, cash out investors, and keep the rest.
This is not a recommended strategy since business shutdowns are usually seen as distressed situations, meaning the value of hard assets will be highly discounted. If things go south, this can be your plan B.
Before you go, here is another strategy: No Exit
If you’re thinking that I want to do this for the rest of my life, or your company is a family business that can never go out of style: then a no-exit strategy becomes a valid exit strategy.
But keep in mind that investors won’t be likely to help your startup scale.
If you’re still confused as to how you can determine your exit strategy, at helo! we help empower entrepreneurs & foster businesses.
Just say a quick helo & we may have a solution for you!
