Thinking about exiting? Here’s what you should know.
One of the most important characteristics of a startup founder is agility. You need to adapt to the changing entrepreneurial landscape and make decisions on the fly. One of the most significant decisions founders have to make is whether it is time to transition out of their businesses. For instance, after their ideas have taken off the ground and gained traction, founders might want to pursue other projects. Or, in other cases, a founder might be struggling to make ends meet. In such situations, the next step for a founder is to make a well-thought-out exit.
As a founder, you need to know how to devise an effective exit strategy to cash out of your startup. If you exit out of a successful venture, it can make you a substantial profit; if you exit out of a lost cause, a well-thought-out plan can help limit your losses. With that said, here are some exit strategies you can take as a startup founder.
Startup acquisitions
Just because you have decided to make an exit doesn’t mean that you no longer care about the idea or the team who helped you bring it to fruition. You can ensure that your company moves on effectively by selling your business to a bigger company.
Acquisitions can be a win-win for both parties involved. Not only does it benefit the startup, which now has access to more resources, but it also helps the acquirer build on a developed idea instead of starting from scratch. Another option available to founders within the umbrella of acquisitions is an acquihire (acquisition+hire), wherein the buyer is not interested in the startup per se but rather the talented team. Under this situation, your startup will no longer be producing its products or services, and the team is transferred to the acquirer with a hiring bonus.
Initial public offering (IPO)
If the problem with your startup endeavor is not a lack of good ideas or interest but a lack of financial resources, then your exit strategy can be an IPO. IPO is the process by which the shares of a company are sold to retail and institutional investors. Most founders dream of taking their company public, and if your company has good growth potential, lucrative earnings and a desire to grow even further, then it’s time to take the step.
With this approach, startup founders will still hold equity within their company. Thus, if the company goes public, there is a huge opportunity for them to cash in and earn many times over their initial investment. This mitigates the risk that the founder might have incurred when starting the business. Be mindful of the fact that going public also gives shareholders voting rights, which ends up giving them a lot more control over company decisions.
“Milking the cow”- if you are not selling
Not every startup needs to be made public or acquired by a bigger company to get funds. If you are looking to sell your business, bootstrapping or using your own resources is an effective strategy to keep yourself going in spite of tough circumstances. If your business does have the potential to grow, you could also continue to make it work by reinvesting profits back into the company. Part of this profit can also be passed on to investors as dividends. This can provide liquidity to all equity holders without the pressures involved with being publicly traded.
Most startups have a lifespan of about three to five years before they either go bankrupt or are acquired. Thus, you must have an idea of how to exit right from the very beginning, such as when you start gathering funds. Exiting comes with the ability to form new partnerships and connections within the entrepreneurial world. It also helps your team and your investors get paid, so it is crucial that you actively think about exiting. Bear in mind that investors put their hard-earned money into your project, so their return should also be your top priority. In short, how you start your company directly affects how you make your exit. So, being prepared right from the get-go can make the difference between exiting with a profit and exiting with a loss.
Header image courtesy of Freepik
