Exit Strategy

Do you have an exit strategy?

If yes, provide the details below. If no, provide your thoughts on potential strategies below.

What would the likely exits be?

An exit strategy, broadly, is a conscious plan to dispose of an investment in a business venture or financial asset. Planning your exit strategy involves a thorough evaluation of your company’s assets, market conditions, financial records, etc.

Business exit strategies include IPOs, acquisitions, or buy-outs but may also include strategic default or bankruptcy to exit a failing company.

• Merger & Acquisition (M&A)
• Initial Public Offering (IPO)
• Management and employee buyouts (MBO)
• Selling your stake to a partner or investor
• Pass to family
• Make it your cash cow
• Liquidation and close
• Bankruptcy

When would the most likely exit take place?

Timing is vital to any successful sale. There are many factors at play including:

• Business Lifecycle Stage
• Seasonality
• Industry Trends & Market Uncertainties
• Product Launches
• Compromised Economic Freedom
• Leadership Disengagement
• Business Gaps
• The Five Ds (death, disability, divorce, distress, disagreement)

As such, it is important to be selling for the right reasons, at the right time.

How long would an investor’s money be tied up?

An exit strategy allows businesses to visualize their future goals, plans, asset management, etc. It provides businesses with a focused trajectory toward their long-term growth.

An exit strategy also provides businesses with the foresight to capitalize on potential opportunities in an active market. By having a plan in place, businesses don’t have to waste valuable time organizing their affairs and can quickly jump on opportunities to sell at maximum value.

Equity investors such as venture capital firms or angel investors hope to exit an investment within three to five years — seven at the outside. Investors have a goal for the rate of return they hope to earn. Discuss what you believe will happen in the next few years to cause the company to increase in value. Regarding buyers, you could identify larger companies in your industry that might want to purchase yours to acquire your customer base.

Because there are so many unknowns regarding how a company will perform — including the economic environment and competitive factors — proposing a range of time is expected.

How much will my potential return be?

Savvy investors know how to make their own calculations based on the financial projections, so you don’t need to pin yourself down to a specific number in the plan. Also, the rate of return is related to how much equity you give up for the proposed amount of capital. You may end up proposing to give a larger share than you actually need to because you want to show a high-enough return on investment to make the deal attractive to the investors.

For early-stage businesses with high growth potential, there are generally four potential exit strategies:

• Trade sale – moderate to high potential for return and conversion to cash for investors
• Sale to private equity house – moderate to high potential for return and conversion to cash for investors
• IPO (Initial Public Offering) – high potential for return and conversion to cash for investors
• Share buyback – smaller return on investment, yet a shorter amount of time than waiting for the business to exit

Focus the discussion on general rates based on your exit plan.