Business exits can be explained as when the owner decides to end his/ her involvement with the business. You might wonder what is so important about strategizing an exit, well here are a few reasons why you should strategize an exit:
How can start-ups make successful exits?
- To protect the business value you have built
- To ease out the transition for your team and stakeholders
- To generate a decent amount of income that can be saved for your retirement or needs
- To increase the worth of your business in the future
We should also keep in mind that if a business does not strategize its exit then they run a high risk of facing huge financial loss.
Let's look into a few strategies on how can Start-ups make a successful exit:
- Start-up acquisition:
The primary exit strategy for startups is to sell the start-up to another successful one for a profit the same goes for investors.The buyer takes over the startup with money or stock as compensation, and key executives and workers from the startup usually stay at the start-up for an amount of time so as to be ready to cash out and vest their stock. Exits offer capital to startup investors, which may then return the money to their partners or to the investors themselves.
- IPO (Initial Public Offering):
IPO stands for ‘initial public offering’ and it primarily means a start-up starts floating on a stock exchange, selling a major amount of its shares among the -to institutional and non-institutional investors. These big corporations are what VCs dream of, as they usually give huge sums of capital to all elements concerned (founders, early staff and investors).
- M&As (Mergers and Acquisition):
Mergers and acquisitions also called M&As, are transactions that typically imply a merger with an identical and bigger company. This kind of exit is commonly chosen by stable/ successful start-ups that are trying to find complementary skills within the market, and buying a smaller startup could be a better way to develop a product than making it in-house.
However, the big question still remains,- when is the right time for startups to exit?
This question is very commonly asked by startups. But in reality, there’s no correct answer to the question. Startups wish to sell for the maximum amount of money and profit (so do investors) and buyers wish to pay very little for their own profit, thus each party has to find a balance. It is also said that for startups to maximize their selling price they must search for an exit once their growth rates are high rather than when they’re at a very profitable stage. And
as far as the question goes in our opinion each businessperson and investor should take into account the circumstances of their ventures and build a decision based on that. There’s no magical formula, however, what’s for sure is that entrepreneurs and investors, sooner or later, will seek for an exit.