Of all parts of the investment process, the exit strategy is undeniably the most treasured moment. For both investors and entrepreneurs in start-up businesses alike.
As an entrepreneur or investor, there’s a lot on your plate when you start a business. You need to be clear on your mission and vision. You also need to have a full understanding of your business model, through your market research. Your marketing and sales strategy, as well as your operations, must have a clear implementation plan. Your goals should be in line with your business plan. It’s easy to get consumed by the day to day responsibilities while the urgent demand for being in the business eats up your time.
There’s another piece of the business puzzle that’s easy to put off but very critical to achieving your long term goals and that is your “exit strategy”. If you set your exit strategy as part of your initial goal-setting process, then all your goal achievements will lead towards your ideal exit strategy.
Understanding Your Exit Strategy
An exit strategy is when an investor or entrepreneur intends to cash in on the investment they have made in the business. There are different forms of exit strategies that investors and entrepreneurs plan out in order to get that return of investment.
Choosing the right exit strategy for your goals is key long term planning for your investment in a start-up. Obviously, you have monthly and annual goals for your business. Obviously, you want to commit to these intermediate goals only if they are aligned with your long term goals. And the ultimate goal achievement of your ideal exit strategy.
Exit Strategy Options
Not planning an exit from your business is the worst mistake any entrepreneur can make. Knowing when you want to sell your business, and how you want to do it, can help you to ultimately achieve its maximum value. The following options can help you understand how and when you would like to exit your investment as an entrepreneur.
ONE: Initial Public Offer
For start-up businesses, an exit strategy could be the Initial Public Offer (IPO). This is where part of the business is sold to the public in the form of shares. This way, entrepreneurs are reimbursing investors within their own start-up. Aside from that, the business gets more access to liquidity for investors and more chances to acquire other companies.
TWO: Mergers and Acquisitions
Startups can do well with exercising the option to merge with another company. Especially if problems with cash flow or liquidity arise. With mergers and acquisitions, the new business stays afloat and provides security among investors.
THREE: Private Offerings
Another exit strategy is to conduct a private offering of the business’ shares to individuals or a select group of investors. It is more cost-effective to raise funds this way because brokers are not required. This can be done with crowdfunding websites like Kickstarter and Indiegogo. The private offering is not registered with trading regulators. Many are exempt from required reporting arrangements and allows for existing shareholders to be bought out in a new fundraiser round.
FOUR: Cash Cow
Cash cows are firms that can command a high market share in an industry dominated by low growth. They are able to sustain enough capital to stay afloat and have increased profits over many years. They are able to pay dividends to investors and shareholders by cashing in on their products.
FIVE: Regulation A+
Regulation A+ is similar to IPO. The business owner can put the startup company on an exchange after qualifying. The entrepreneur can benefit from raising money and conforming to particular stipulations laid down by the trading regulator without having to publish accounts publicly or file other mandatory paper works that would be required of an IPO.
SIX: Venture Capital
A good way to secure investors is to keep the cash rolling into the startup. Often, a venture capitalist would invest large sums of money into businesses and start-ups that are deemed worthy of note.
Although it takes time for the investment to mature, it is able to provide a steady source of cash to create more investments. It also allows you to expand development. As a startup, you are able to attract other wealthy investors who see the potential for high returns in the future. More real estate crowdfunding companies are going into venture capital.