From the start! The exit strategy should be determined before developing a plan of how to finance the entity, as the structure of control and obligations to investors may impact the company’s exit options.
The exit strategy doesn’t have to be complicated – just set a goal.
The landscape of exits in today’s market
- Today, the most common type of exit is a merger or acquisition exit, where the start-up is acquired by a large company.
- Most exits are under $20 million, and occur pre-revenue.
- IPOs are increasingly rare in today’s market.
When to exit
Earlier is better – the most successful exits occur in just 2-3 years.
Your goal should be to exit when the company is on the up-swing, because it is more difficult to sell when company is not rapidly growing. It’s important to note that just because there is an exit does not necessarily mean the founders will not still be actively involved in running the company – often the large company acquiring the start-up also wants to acquire the expertise and vision of founders.
Be aware of market and competitor activity. If everyone in the industry exits and your company does not, you may have missed the train.
How to prepare for an exit
Keep corporate documents in order – if due diligence is done up front, it facilitates a quicker process once interested buyers come along. You don’t want to miss a good opportunity because the deal got delayed due to disorganization. Some simple but important actions you can take to ensure the company is ready to be acquired are to:
- Make sure employment and IP agreements are in place and are conducive to an exit.
- Maintain corporate records and minutes.
- Maintain updated and accurate capitalization tables.
- Put an audit committee in place early on.
- Structure financing in a way that will incentivize an exit – especially in regards to vesting of founders’ shares.
- Bring on a skilled M&A team, including an advisor and legal and accounting professionals.
- Professionals will bring expertise and work to maximize the price and terms of the sale.