For five years and more you have toiled away on this startup venture building it literally from scratch and making it a successful company that is the envy of all. You had friends who seed funded your venture and as the business grew you were able to get investors to back you all the way. But in all this have you planned an exit strategy? Wait a minute. Why would anyone want to let go of a venture that they are passionate about, especially if it is doing well? For some people calling this plan as an exit might make it sound negative which it certainly is not.
If that be the case you can very well term it as transition. In other words you should try cash in when the going is good than try and wriggle out of a bad situation. At the end of the day startup ventures are risky propositions. Quit while you are ahead of the competition.
An exit strategy is also crucial from the point of view of the investors who ultimately want returns on the funds that they have pumped into your startup venture. After all equity based investments are not like a loan with interests. Far from. There is another good reason why successful entrepreneurs exit their own startups.
For these individuals it is the calculated risk taking and the daily challenges that comes with running a startup which matters. And managing what is a successful company with a global presence and hundreds of employees is simply not as exciting. If anything they will be eager to implement their next bold idea and start another venture. Similarly entrepreneurs exiting a failed venture will be anxious to use the lessons they have learnt in their next venture. And the easiest exit route to take would be to merge your company with a bigger one, through a merger/acquisition.
In mergers & acquisitions the buyer uses cash or stock to take over the startup while retaining key employees who have been part of the venture since the beginning. For well established companies whose nature of business is similar it is a more practical way of increasing revenues without having to spend time & energy on creating new products. Though studies have shown that it is larger companies with higher sales and better growth that seem to prefer to go for the IPO exit option, for startups the best exit strategy has to be through an IPO.
IPO or Initial Public Offering involves the sale of a certain amount of shares by the startup to the public. Once valuation is done the shares are made available in the stock market. If the IPO turns out to be a success it will mean that investors can easily get returns on their investment. All they have to do is to sell their shares.
For you, the entrepreneur an IPO is a great exit option. Thanks to all the buzz surrounding the company and it’s public offering there will be great interest among buyers. This will lead to an increase in the value of your shares and you will end up with enough money to start another venture. Sooner than later.
And more often than not going public will give a better valuation for your startup venture than a merger or an acquisition. Though it must be added that a lot of this is subjective and it is necessary to weigh all pro and cons before making the final decision. In conclusion one must add that it is crucial that as an entrepreneur you start planning your exit strategy right away. When it comes to startup business it is always better to be safe,
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