Before embarking on a new business venture an exit strategy should be developed from the start. An exit strategy takes time to implement and may also determine the number of resources that should be invested in the business. An investor could opt to use an IPO where a portion of the valuable company is sold to the public markets. With this option the investor would want to continue to invest substantial resources so that the company remains successful. This is important as the investor can continue to remain a part of the company. A problem with the IPO is that there are more regulations for the company that would need to be taken into account when planning for the company’s future.
Another exit strategy option is a strategic acquisition where another company buys your business. Within this strategy, the number of resources invested does not need to be as large as another company will eventually have full control over the company with responsibilities including developing quarterly sales reports. The structure of the company will need to be able to take into account as the investor would need to give up their control of the company along with their responsibilities. With this strategy there is also considerable uncertainty about what will happen to the business including the remaining staff. Being prepared with the knowledge that this will be the exit strategy that will be used an investor can take the needed steps to prepare for the transition.
A similar exit strategy is a management buyout. Rather than sell the company to another business, in this strategy the venture is handed over to the next group of managers within the company. For this exit strategy, the investor will also need to take into account that they may not have full control of the company in a few years. However there will be a comfort that the company will remain with the same individuals who were present when the company started. By taking this into account an investor can ensure that they do not have too many responsibilities that would be difficult to pass onto the next generation of managers.
Gladstone, D., & Gladstone, L. (2004). Venture capital investing. Upper Saddle River, NJ: Pearson Prentice Hall.