Startup Exit Strategy

Investing

2 min read  The end goal of most startup organizations is to eventually exit the marketplace. This is when everyone involved in the deal makes their largest profit off the business. Strategy is key to a successful exit. In this article, we discuss how to plan for an exit, ways to exit, and how to negotiate the exit.

Planning For an Exit

Startups should start planning for an exit after they achieve product-market fit. The following are some key points to consider when planning your approach to an acquirer:

  • What are the key metrics the acquirer will look for?
  • What are the company’s metrics and how do they currently look?
  • How big is the market for the company’s product?
  • What initiatives are underway that will produce value for the company?
  • How is your companies product compared to the competitor?
  • What is your primary competitive advantage?
  • How consistent is your growth rate?
  • What is your forecast for the coming three years?

How will your company be perceived by the potential buyer? Use them to guide your funding, hiring, and strategic plans.

Looking For An Exit

Startup investors look for an exit in the 5– to 7-year range. As a startup, you need to consider the exit from the beginning as the exit strategy can inform your decisions around funding, hiring, and more.

Here are several exit options to consider:

  • Mergers and acquisitions – most companies exit by being bought by a bigger company.
  • Going public – some companies still use an IPO for an exit. It can be expensive due to compliance, so fewer companies take it.
  • Private equity firm – more companies are staying private longer and often use PE firms to give the early investors an exit.
  • Revenue sharing – some investors exit by taking a revenue share for their return.
  • Liquidation – some companies can be sold for the assets to provide a return to the investors.
  • Share buyout – some investors will accept a buyout of their shares from the company to provide an exit in the event there is no other option.
  • If your investors are family members or others who do not expect to be paid back, then you can skip the exit and just maintain the business. 

As you launch and grow your business, keep a list of potential exit options and consider what you would need to do to achieve it.

Negotiating The Exit

In negotiating the exit with an acquirer you’ll need to know the following:

  • Key metrics about your business, both those that show the company in a positive light as well as a negative one.
  • The total addressable market for your company.
  • The top three opportunities your company can attack.
  • The company’s competition and competitive advantage.
  • The company’s track record in meeting forecasts and accomplishing milestones. 
  • Also, acquirers will ask why you are selling the company and why now?
  • Why is the acquiring company a good fit for your company?
  • How closely aligned in operations is the company to the acquiring company’s operations?
  • How much integration work will need to be done?
  • What role will the CEO play after the acquisition?

Think through the answers to these questions as most of them will come up. 


Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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