There are a few key building blocks to ready your business for investment, and more broadly ready yourself to succeed in your venture. Three key pieces of the puzzle are a great pitch, a business plan and an exit strategy We’ve talked about the importance of having an exit strategy in what angel investors look for in startups – investors will expect to be presented with one, or some possible exit strategies to show how they can get their investment back.
An exit strategy can help an investor see if you intentions and theirs match up. They will have an amount of money in mind that they want to make in addition to their original investment, so highlighting options that you have considered, and completed a risk assessment on will be attractive to them so they can weigh up if one aligns with their requirements.
Not only that, an exit strategy is essential to gaining investment for your business, but it will also enable you to plan ahead and help you understand your plans, organise your thinking and help you make better business decisions as you develop, as there will be less emotional involvement when you’re just start out.
So, how to you develop an exit strategy for your startup? We cover the main exit strategies employed by startups and some things to consider when putting yours together.
Different Exit Strategies
Determining your exit strategy before going into business reduces risks, as you of veering off track from your original business goal, ensures you implement the right processes and helps you determine where you want to take your business in the early stages.
Many startup entrepreneurs don’t want to run the next Google (though some do!) so a solid exit strategy ensure they can leave quickly and easily with as much money in their pocket as possible before moving onto their next venture.
- Initial Public Offering (IPO). This used to be the dream outcome for budding entrepreneurs. But the rate of opportunity has been declining year on year as public companies who invest want more assurances of success which adds pressure to your venture.
- Sell to an interested party. This is a good way to sell to someone who has the expertise to maintain or scale the business so you can pay back investors and yourself and other founders.
- Continue to own it but get someone else to run your business. If your business model is stable and revenue is guaranteed for the foreseeable future, use money in the bank to pay off your investors, employ someone to run it for you while you keep ownership and receive money from its success.
- Liquidation and close. One exit strategy that many don’t consider is to shut up shop and liquidate. This can be a good plan if you have valuable assets
Each exit plan will incorporate whether a Founder remains present in the business in the future, or relinquishes responsibility to investors or other parties. Depending on the trajectory of the company as it develops, this involvement could change, but having an exit that has been agreed by those with ownership of the company can avoid difficult conversations and decisions in the future.
When is The Right Time to Exit?
There is no right answer for this but looking at the idea that startups and their investors want to sell for as much money as possible, and prospective buyers want to get the business for the smallest amount , so when determining your exit strategy and timing of such, aim for the time when your growth rates are high to look for the best deal.
If you own a larger chunk of your business, logically you can sell for a lesser amount to make more money, than if you only own a small percentage with other investors but review our strategy during each round of investment to check it’s still right for you and you’re travelling on the right trajectory.
Writing an exit strategy is an essential step when you start a new business. It can give you the bigger picture of what you are trying to achieve, and enable better decision making and save time and stress down the road not to mention help you secure investors.