How To Secure Startup Funding And Plan An Exit Strategy
An exit strategy is really crucial for business owners, yet most of the time it is overlooked until circumstances demand radical adjustments. Ignoring to develop a well-considered exit strategy that guides the course of your firm might so restrict your future business growth. You should actively design your exit plan to ensure the best possible outcome and safeguard the future of your business far ahead of the time.
This post will guide you through the process of choosing the exit strategy most suited for your investor expectations and business goals. We will also go over actual business departure scenarios and the main things you should be aware of while using your chosen exit strategy.
How To Secure Startup Funding And Plan An Exit Strategy
Once a startup achieves a specific milestone or value, an exit plan is a deliberate approach for handing ownership of it. This crucial component of a company strategy demonstrates how owners and investors might recoup their money and gain from the taken chances. Early in the exit strategy, integrating elements like employee stock options or equity assures that the interests of significant stakeholders are adequately taken into consideration, therefore promoting a fair transition.
Each of mergers and acquisitions (M&A), selling to a strategic buyer, or initial public offerings (IPOs) provides a clear road map for the future and assures financial stability.
For investors, who occasionally look for a clear route to a return on their money, a well-considered exit strategy may significantly increase the attractiveness of a company. Planning an exit guarantees constant development and a seamless transition when the time is appropriate as it helps entrepreneurs manage the corporate environment. This methodical approach benefits the owners and investors as well as the overall business by helping to build a healthy organizational culture and opening the road for a smooth transformation.
Read also: How to secure funding for your startup
Identifying departure routes
An exit strategy is a well-organized plan that enables a company to navigate a spectrum of future events and preserve its competitive advantage amid phase transitions. This approach serves as a road plan, enabling the company to optimize all the possibilities by methodically and gradually achieving its exit point.
Usually either seeking angel funding or raising venture capital funds calls for an exit strategy. Usually, angel investors want complete awareness of your future exit plan so they may project when they may anticipate a return on their investment and what that return could possibly comprise.
How often are effective departures
Studies by Startup Genome reveal a striking fact: barely 1.5% of startups—that is, around 15% of those that survive—achieve a successful exit valued at $50 million or more, despite nearly 90% of companies failing at some point. Not only are top eight US startup settings seeing this tendency.
Fascinatingly, with 38% of the global startup exit scene, Europe leads the way according on CBinsights 2023 study. Closely second at a 35% share is the United States. Asia saw sixteen percent of exits over the period.
Although the overall number of departures has been steadily declining after the epidemic, implying ongoing market challenges especially for investors seeking liquidity, this underlines the need of having a good exit plan as it not only benefits the entrepreneur but also is rather important for investor relations and the general startup performance.
Read also: Creating A Venture Capital Fund
Why does your company require a plan of exit
An exit strategy's major objective is to let companies design and implement precise development strategies. This deliberate approach enables businesses to identify, ready for, and implement actions maximizing advantages. A well-written departure plan offers certain benefits including:
- Clear direction and clarity. In a business environment experiencing changes, a startup exit plan provides the organization with a well-defined, unambiguous road map of action that facilitates prompt decisions.
- Opportunity growth. An exit strategy helps companies in formulating strategies to grab new opportunities and arrange their activities around them.
- Correspondence within. An exit strategy ensures that all initiatives and plans point in the same direction and facilitates the building of linkages between many departments thereby producing a coherent picture of future growth.
- commercial fitness. An exit strategy assures that new opportunities are continually searched for and supports the company to stay strong and effective.
continuous increase. An exit strategy ensures that the right behaviors are carried out continuously and offers a framework for business growth. This suggests that the company will be able to take advantage of the opportunities it finds in numerous spheres.
A startup should draft an exit strategy when
A company should begin creating an exit strategy from its inception as investors typically see a well-defined exit plan positively and can help to attract early money. The firm's business plan should incorporate the exit strategy, which provides a clear road map of how investors and founders may recoup their money and maybe profitably return it.
Early preparation does not mean early departure; it rather shows foresight and preparedness, which are essential for crossing the uncharted waters of entrepreneurship.
Being adaptable is especially crucial as the exit plan may change depending on the performance of the company, state of the market, and other elements. Early exit plan development helps founders and investors to be in line, enhances decision-making, and generates a clear future vision that can help the company to reach its long-term objectives.
Read also: What Is A Venture Capital Firm
Many kinds of exit plans
Start-up owners and investors seeking a successful change-of direction have to learn to negotiate the several avenues of departure. This section provides a road map for a good departure by investigating numerous exit options and clarifying how each matches certain company models and long-term goals.
acquisitions and mergers (M&A)
M&A deals—that is, when one company buys another or when two or more firms band together to form a new company. By means of M&A deals, startups might have a great chance to access new markets, resources, and knowledge. But according to a fresh CB Insights study, M&A deals in the global startup ecosystem kept decreasing by 8%.
First public announcements, or IPOs
Initial public offerings, or IPOs, are first-time public sales of company stocks. With IPOs, start-ups might increase their profile pretty well and create money. Research shows that the global IPO industry is showing a continuous recovery with a noteworthy 24% increase in the count of IPOs. Though they might be expensive and complex, IPOs are not suitable for every company.
Leave under familial succession
Family succession is passing on a company to the next generation. This might be a terrific option for business owners who want to keep their firm in the family. Still, it's important to make sure the next generation is prepared to run the business.
Marketing a third-party your share
This is the state of affairs whereby another investor buys a piece of ownership in your company. Selling your share might be a great way to make money or cash out of an investment.
learnt
This is the process by which a larger company buys a startup largely for intellectual property and skills. Acquihires can be used by startups to let their employees find new opportunities and leave.
Management buy-out (MBO)
An MBO is a contract whereby management team of a firm purchases it from present owners. MBOs might be a helpful instrument for management teams looking for ownership over their own company and value creation for employees and themselves.
Liquidation, sometimes known as bankruptcy
Not every exit, meanwhile, is ideal. Liquidation is the selling of a company's assets accompanied by a stop to activities. Though it's normally a last resort, liquidation might be necessary should a company discover it lacks the funds to exist. Comparably, bankruptcy is a legal process wherein a company is declared insolvent and its assets are sold. One should avoid bankruptcy wherever practically possible.
Among numerous other factors, the industry, stage of growth, and financial status of a company will determine its ideal exit strategy. Give all of the options careful attention before deciding on your leaving strategy from your employer.
Read also: Difference Between Private Equity And Venture Capital
Useful pictures of escape mechanisms
Examining multiple exit strategies offers an insight into the numerous routes businesses might take to get either cash or further growth. Reflecting a turning point in their different histories, these stories highlight how exit plans are tailored to the specific circumstances and goals of every company.
Who bought Loom from Atlassian
Notable Australian software company Atlassian spent around $975 million to purchase Loom, a novel asynchronous video chat solution. Aiming in line with the rising trend of hybrid work and virtual communication, this acquisition was a deliberate action aimed to improve Atlassian's team collaboration capacity. Loom's video messaging system uses shared movies to enable speedy communication—a feature Atlassian, one of Loom's early users, considered to be to be absolutely priceless.