There’s no high like starting a company-that heady mix of challenge, innovation, and possible stratospheric return. Sooner or later, all founders face one question: What’s next? The common exit strategies for startups is hugely important to founders and investors alike and sets the way that effort put into building a startup will crystallize into a tangible return.
In this post, we review several common strategies toward exiting a startup and how those affect founders and investors alike.
Some Common Exit Strategies for Startups
1. Mergers and Acquisitions (M&A)
M&A is still the most common exit route for a startup, whereby it sells out either to another company or merges with another firm. This track can instantaneously be financially rewarding and strategic, as a start-up, by integrating with the acquiring company, attains more means and deeper market penetration. There are many downsides, too-it is a complex, often very protracted process requiring deep negotiations and due diligence.
2. Initial Public Offering – IPO
IPO is basically one in which the shares of the startup are sold to the public, and it becomes a publicly traded company. This may raise significant capital, with increased market visibility for the company. Though the potential return is most rewarding, there are strict regulatory requirements and costs in the process of an IPO; therefore, the model is primarily suitable for those startups that have sound financial performance and growth prospects.
3. Liquidation
That is almost where a start-up becomes unsustainable. In that case, the firm should proceed to liquidate its assets and distribute such assets to the creditors. This usually provides minimum returns for either the founders or the investors, considering this process is usually to recover losses rather than to make any profits.
4. Bankruptcy
This eventually leads to bankruptcy when a startup cannot fulfill the financial engagements it entered into. It may also lead to dissolution of the business entity, leading to massive losses to founders and investors alike. While bankruptcy is a way out that does allow reorganization, it is potentially branding of a person in providing stigma when one tries to conduct future business.
5. Selling Your Stake
It primarily involves the selling of parts of ownership by founders to other investors. Though a great strategy in providing liquidity either for personal or business needs, this may greatly affect the control a founder has over the company. Great care is taken so that it achieves a balance between the need for funds and its implications on control.
6. Family Succession
What seems so tempting in the alternative of passing the business to the family members is the certainty, for the other founders, of continuity and maintenance of the founder’s legacy. It can make personal relationships more complicated and requires good planning to prepare the next generation to be ready for its management.
7. Acquihire
In a nutshell, it is when a bigger company buys a startup mainly for its workforce and not for its product or services. This may be in the best interest of founders who would want to transition out but at the same time want their team taken care of. It can also be a softer landing for employees and possibly in the best interest of both parties. Implications for Founders and Investors
For Founders
Diverse Financial Return
The various successful exit options can return substantial financial benefits, enabling founders to profit from their hard work and investment. A correctly tailored exit strategy will efficiently maximize personal wealth.
Legacy and Control
Variants of exit options provide a different degree of control. For example, family succession will keep the legacy of founders while in M&A or at an IPO, the ownership or control over the business would be lost.
Psychological Factors
Liquidation or even bankruptcy of the company may be viewed as a personal failure; hence, the consummation of a business exit is very emotional. Herein, the psychological factors of the exit need to be prepared by the founders.
For Investors
Return on Investment
The investors are mainly concerned about getting back the best return. M&A and IPOs are considered the highest yielding strategies in which fantastic financial returns are given.
Timing and Strategy Alignment
The exit strategy adopted also needs to be aligned with the investors’ expectations in terms of timing and financial outcomes. A well-planned exit strategy can help build investor confidence and further attract investment.
Market Conditions
Economic conditions will make certain exit options more or less viable. For instance, a decline in the economy would restrict avenues through M&A or IPO, hence affecting investor liquidity and return.
Conclusion
The selection of an exit strategy is hence of great importance to founders and investors alike, given its implication for financial outcomes, control, and success.
Thus, understanding the various ways in which an common exit strategies for startups can be sought and the potential consequences thereof is one of the great ways by which an entrepreneur can gain a better understanding of, and avoid, various complexities in the startup landscape.
Whatever be the case-M&A, IPOs, or other strategies-a well-planned approach in which the goals are aligned is what will make a successful exit worth the while of all parties concerned. Now, consider all those exit strategies as you progress through your entrepreneurship into old age in preparation for success.
Written by  Srilekha
