First things first. One, entrepreneurs receive abundant advice or mentoring on building a successful business, but one of the most important pillars of building a rock solid organization is to keep their exit strategy in place.
It might be a move that may not need immediate attention, but an entrepreneur needs to cover all ends that is related to his foundation.
To some an exit strategy sounds negative, however, in true sense it actually brings the best out of an entrepreneur to make the maximum of a good situation and in tough times seek a change for the best future of all the stakeholders involved including customers, employees, shareholders and own self.
Let us look at an ideal investor pitch for raising capital to understand the importance of an exit strategy. A typical investor pitch starts with a confident and poised introduction followed by explaining the problem statement, market opportunity and how you solve the problem.
Next, you give a detailed explanation of your business model and what it takes to make money from the solution, your team and your proof of concept.
After an outstanding pitch, comes the point where you have to share the prospect returns and exit strategy – these are the final moments of your fund raising presentation and you cannot go wrong with your assumptions here.
The way you frame your exit strategy speaks volumes about your understanding of your business, plans and realistic understanding of the opportunities that lie ahead.
An exit strategy takes time and may evolve with time as the business reaches new pinnacles of scale and growth. In my opinion, the selection of a particular exit strategy and structure depends on variable factors like whether it is a partial or complete exit, tax implications, and time taken for completion and acceptability of the structure to the regulators.
Every step along the complex path of executing an exit strategy requires advice from professional bankers and legal experts in the areas of Corporate Finance and Strategy, who understand the opportunities and the pitfalls.
The key for everything to fall into place is that the business owners need to take charge and manage this process rather than just let it happen.
Let us go through some of the ideal exit strategies for your business’s future, which can make way for a very successful and smooth transition for your venture.
Exit Strategies – No one size fits all
There are different types of exit strategies opted by businesses, some of them are:
Mergers and Acquisitions: This means that your company merges or gets bought by another company whose synergies and goals are similar to yours. It is a win-win situation when companies have complementary skills, and add resources to their repertoire by coming together.
The question for the acquirer is whether to build or buy, depending on his vision of scale, timelines and growth. For the exiting company’s founder, this is an ideal platform to negotiate a price at which they would like to sell, whereas in an Initial Public Offering (IPO), the company has to be valued relative to industry peers.
Often, acquirers have their strategies defined when they look for companies to buy – it could be talent acquisition, complimentary business, access to newer markets and clients or research and technology. Your ability to sell will therefore depend on some of these factors.
Going for an IPO: Going public is an aspiration for many founders and it is not a bad choice if the founder or current leadership wants to stay in the business for a long time. Being public in a growing market should be considered as an option as it helps your ability to raise capital in the future as well.
An IPO may not work for the reasons related to the regulatory process or the time it takes and costs involved. An IPO is recommended for businesses that have achieved scale, not for early stage ventures.
Employee buyout or Partnership: Sometimes the opportunities to create something incredible may come from another company who expects you to join them leaving aside what you have built.
Once you have made the tough decision, let’s say in this case you have taken the offer made by the bigger company then the option that is easier to implement is to hand over the company to the team that has helped you run it. You can give them partial or full control and handhold the transition to ensure operations run smoothly.
Once the employees are confident of taking over the venture, you can potentially discuss complete exit or a revenue or profit sharing model with your involvement as an advisor. This strategy is one of the best options available to business owners who run short of time to get an exit.
For any business to be successful, the entrepreneurs need to focus on building the technology or product, acquiring clients and raising capital. A venture that holds the ability to achieve positive cash flows is likely to stand good in the times of exit strategy implementation.