Business Exit Strategies

An IPO is often considered the holy grail of exit strategies. However, it’s a long and complex process that few startups achieve. The benefit is that your shares can become highly liquid and offer substantial returns.

Being acquired by another company is a more common exit route for startups. This can happen through a strategic acquisition, where a larger company buys the startup for its technology or customer base, or a financial acquisition, where a financial firm buys the startup as an investment.

Here, you sell your shares to another private investor or back to the company. This can be a viable exit strategy when IPO or acquisition options are not on the horizon but can often result in lower returns.

A merger combines two companies into a new entity. As an angel investor, your shares would be converted into shares of the new entity, which you could then sell or hold.

In an MBO, the startup’s management team buys out the investors to take full control of the company. While less common, this option can provide a satisfactory exit, particularly if the management team has a proven track record.

The least desirable exit strategy, liquidation, occurs when the startup is shut down, and its assets are sold off. While this usually results in a loss, some portion of the invested capital might still be recovered.

Having a well-defined exit timeline is crucial. Be clear about your exit timeline and align it with the startup’s goals and milestones, whether it’s a short-term flip or a long-term hold.

Finally, ensure that the legal agreements you enter include clearly defined exit clauses, ensuring that your exit strategy can be executed smoothly when the time comes.