Even the most successful founders need to consider exit strategies for their startups. They should assess what needs and wants from it, as well as how much time they’ve invested in it. This can lead to a few conclusions:
The “startup founder exit strategy” is a topic that has been discussed in the past. It is important for startups to have an exit strategy because it can be costly if they don’t.
Entrepreneurs seeking angel investors or venture capital (VC) must have an exit plan in place since investors want it. It is the exit that allows them to return.
Exit methods for startup financing are often misunderstood: The money is the “exit” in exit strategy, not the company founders or small business owners. Money is brought in by the firm, and money is taken out by the investors. As a result, entrepreneurs seeking angel investors or venture capital (VC) must have an exit plan in place since investors want it. It is the exit that allows them to return. And the rest of us who are establishing, operating, and developing a firm without seeking outside funding will almost certainly need to quit at some point; nevertheless, there is likely no urgency.
When investors who previously invested in a business receive their money back, generally years later, for a lot more money than they originally paid, this is referred to as an exit plan. That’s what Crunchbase was talking about last December when it released The Average Successful Startup Raises $41M and Exits at $242.9M. And that’s exactly what happened earlier this month when LinkedIn bought Newsle: the deal terms weren’t disclosed, but two venture capital firms had spent $2.6 million buying shares (investing in) Newsle, and unconfirmed reports say LinkedIn paid $30 million, so we can assume the two VC firms made a lot more money than the original $2.6 million. That is the standard return on investment for investors.
Investor exits usually take one of two forms: the startup is acquired by a larger company for enough money to give the investors a return (as Newsle recently did), or the startup grows and prospers enough to eventually register for selling shares of stock to the buying public on a public stock market (as Facebook and Twitter did in 2012 and 2013 respectively).
The conventional method of exit
When investors listen to startup pitches, they want the businesses to discuss their exit plan. This generally entails discussing how comparable organizations in similar areas have been able to leave by selling out to a bigger company in the presentation and business plan. The more advanced plans and pitches will reference previous exits and provide details on how the firms that departed were valued at the time they were purchased. “[This comparable firm] was bought by [that company] in [that year] for [that sum], which was [that multiple] of its sales,” or anything along those lines. The common expression in this context is “5X” for a five-times-revenues exit value, or “10X” for a ten-times-revenues departure value, or whatever. That should not be mistaken with similar terminology describing the investors’ departure: a “5X” exit, for example, would mean that the investors got an actual exit amount, in money or shares they may sell, of five times what they initially invested.
When you contemplate what happens to investors who don’t obtain exits, you may understand how they feel about exit strategy. They don’t have a way to get their money back. They invest money in a firm but get nothing in return. Having a minority stake in a good, expanding business with no way out is a nightmare situation for investors. My personal angel investing efforts involve many investments in firms that are still healthy, expanding, and have happy founders, but have no strong exit possibilities in the near future. And, although this situation may be beneficial to the founders, it is detrimental to the investors.
For more than six years, I’ve been a member of an angel investment group, and every year, I’ve been active in examining the possibilities (what we call “due diligence”) for potential acquisitions. And, as a group, we’re concerned about transactions that don’t seem to provide plausible exits, as well as investing in firms whose founders don’t appear to grasp or appreciate the need from an investor’s perspective.
Exit strategies of a different kind
Aside from the investor-oriented exit strategy, which is a component in every outside investment, you’ll sometimes hear about a different kind of exit, in which the startup founders, the entrepreneurs, sell their firm and transform their ownership in a business into money. This is particularly common when individuals get older and want to complete their professions. Rarely do you come across younger entrepreneurs whose objective from the outset was to build a firm, expand it quickly enough to attract a buyer, and then sell it. These are exits as well.
I’ve got firsthand experience with a number of different approaches to the standard departure. I held considerable shares in Borland International as a founding director when it went public in 1986, and that provided me with an escape. Because I got the shares in exchange for planning and guidance rather than investing money, the return wasn’t quantifiable in the traditional sense. In 2002, I helped VCs who had invested in Palo Alto Software a few years before get their money back. We bought out their shares to prevent tying them in as minority shareholders in a business that wasn’t going public and wasn’t going to be purchased since valuations had changed and we weren’t trying to be acquired. Since 2009, the angel investment organization in which I participate has made seven investments, none of which have yet resulted in an exit.
Do you know how to create and present an exit plan that works? Do you have any other inquiries? Please share your thoughts in the comments section below.
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The “how to write an exit strategy for a business plan pdf” is a document that outlines the steps that are necessary in order to write an exit strategy. The document also includes how much money it will cost and what resources should be used.
Frequently Asked Questions
What is a good exit strategy for startups?
A: There is no good exit strategy for startups. If you are considering a startup, then its important that you make sure of your goals first before investing in any company or product.
What are the 5 exit strategies?
A: There are many ways to exit Beat Saber. Here are the five most common ways, in order of how often they are used to escape a song that is too difficult or frustrating for you. 1) Leap Out 2) Spin 3) Hit The Wall 4) Jump 5) Crash
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