The startup exit strategy of the company and developing a strategy means having foreseen, from the beginning of the activity, how said exit will be, the end of the company. There are many types of company exit. From the sale of the company to the merger, they were going through the IPO or the definitive closure.
It is essential to plan for different scenarios for two reasons:
To Follow the Right Strategy
When creating a startup, you need to know what you want to achieve as a founder. For example, your goal may be to create a company with high potential and have it be bought or merged with one of the market leaders. Or you are thinking of consolidating yourself as one of those leaders.
Depending on your long-term plan, your exit strategy will be different: if you want to make money by selling the company. You will focus your efforts on a final sale or a merger. If you’re going to consolidate the startup in the market, the exit will be an IPO and long-term consolidation
To Attract More Investors
When looking for investors, they invest. To disinvest. That is to say: they invest money in your company with the medium-term objective that this money returns them with benefits. One of the aspects that determine the profitability of your startup is your exit strategy. How will investors make money? You can propose the investment to sell or merge the company, and investors collect profits there.
Even if you don’t want to think about it, an exit strategy must also include the forced closure of the company. Because when things go wrong, there remains no time to plan, but if from the beginning you decide what responsibility each partner has, to what extent they will bear losses, etc., you can start with a sure mattress.
Types of Exit Strategy in a Startup
We have discussed some of the options you have for an exit strategy for your company. Going into detail, these are the main options:
Sale/Acquisition of the Startup
It is one of the most optimal situations since it usually benefits the founders and the investors that the startup has had. It is typically a company in the sector, one of the leaders, that acquires the startup’s shares. Here we must highlight the possibility of a partial sale when, for example, the startup sells a patent or an entire production line
Merger of Companies
It is another of the options that entrepreneurs consider when starting a project, and that usually brings benefits to its founders and investors. The startup merges with one of the mature companies in the sector to take advantage of its technology, its brand, and the market it has conquered.
In the long term and a phase of consolidation and maturation of the company, it can opt for a Public Offer for Sale (OPV), going public. Here, the market’s valuation of the company marks the benefits obtained by founders and investors. It is an option taken by entrepreneurs who want their brand to be one of the market leaders and reject the sale.
Repurchase of Shares
Also designed for founders who want to continue with the startup but, at the same time, offers the exit option to investors who entered in exchange for a return in a specific time. When the time comes for the investors to withdraw. The founders can either sell the company or buy back the shares.
It is the worst of the options since it means the cessation of activity and, therefore, the impossibility of recovering the investment. A closing plan must be creat so that the startup is prepared for the worst-case scenario. Although any entrepreneur and investor can try to avoid reaching such a situation
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Whether your business model has changed, the truth is that financial accounts should never leave your head. Because the mental calculations and planning you do at the beginning do not matter. It is most likely that everything will be more expensive than you had initially thought.
When you set up a company when designing your growth model, there are basically three possibilities:
That you Plan the Growth Model Very Short Term
In that case, as soon as you have crossed that threshold, you will have to ask yourself again how to continue growing.
That You Plan the Growth Model in the Very Long Term
You may have planned to conquer all of Spain and Latin America. But what about before? Before you get to that (if you get there), where will you go? Speaking in silver: who is going to be your first client? Who will be the people who give you your first income or benefits? If you haven’t asked yourself these questions, maybe you should go back to planet Earth and start asking them.
That you Plan A Growth Model in the Short
medium and long term. It seems like the best option. But beware, not everything is won yet. Because if everything were as easy as planning every minute of your career and meeting all your goals, starting a business would be child’s play, right? And obviously, it is not. It is more than likely that, along the way, there will be things that turn out very differently than you planned, both for better and for worse. In that case, you should know how to adapt as soon as possible and replan everything. Because new circumstances also require a new strategy, decision-making ability is precisely one of the ordinary things.
Exit strategies are plans executed by business owners, investors, traders, or venture capitalists. For example, venture capitalists take the risk of investing in startup companies, hoping that they will earn significant returns. When the companies become a success. to liquidate their position in a financial asset.
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Review What is a Startup Exit Strategy? – Important, Types, and More.