Common exit strategies include:
- Merger & Acquisition (M&A): This is the most common exit strategy for startups. M&A benefits investors, founders, and equity-holding employees by offering a direct return on investment in a lump sum. Sometimes this can mean a new, exciting venture for you and the team that helped you get there, but it may also mean a change of course for you and your employees.
- Initial Public Offering (IPO): An IPO means transitioning from a privately-held company to a publicly-traded one. You’ll work with a bank to set the value of your company’s shares and then hope that the market drives the value up even further. IPO’s have become much less common than M&A in recent years due to the high level of risk involved.
- Lifestyle Business: A lifestyle business can be an excellent option for a founder who wants to continue to be involved in perpetuity, especially if you bootstrapped the company. However, for startups that have taken venture or seed capital, investors will not be satisfied with this option, as the return on their initial investment likely won’t be high enough.
- Aggressive Growth Target: Although less common, an ‘exit strategy,’ can sometimes mean an exit from the current business model and an entrance into a new one. This type of exit can look like a goal of doubling your sales, or introducing a new product or service; really, it can be anything that will require a foundational shift and is likely to accelerate business growth.
- Liquidation: Typically, liquidation isn’t ideal. It’s often the result when there’s a lack of strategic exit planning, and trouble is afoot. However, it’s an option, if, for some reason, you must walk away.
No matter which option is right for your company, having a plan is key — whether you plan to exit in one year, five years, or 20 years. And, if you’re targeting an acquisition, make sure you know what strategic buyers will be looking for when they examine your financials.