For entrepreneurs who are working on getting a new business venture off the ground, it can be easy to lose sight of the long-term. While your eventual exit may not be top-of-mind right now, potential investors will want to be in the loop on your exit plan, as it will influence the strategic direction your business takes long-term.
Setting Your Endgame
No two exit strategies look the same. Although the steps taken to prepare remain consistent across the board, the order and timing of each step will depend on your company’s values, exit goals, and the negotiations that will ensue. To begin planning, you’ll need to lay down a framework that includes your major goals and how you plan to track them.
Big Picture Goal-Setting
As you begin planning your exit strategy, consider: What is your ideal endgame? Once you’re no longer willing or able to run your business, what do you want to happen to it? These are big questions, but they’re important to answer because they inform the rest of your planning.
Determining Timing and Metrics
This can be difficult to estimate, but you should come up with a ballpark range on when you personally plan to make your own exit and move on to another venture. This will help keep you on course with your goals. In addition to timing, you should nail down and begin monitoring the metrics you know potential acquirers or stockholders will look to when gauging the health of your business.
Gearing Up for an Exit
As you begin preparing your business for an exit, you’ll need to make sure you have your ducks in a row. For a merger or an acquisition, this means making your business as attractive as possible; i.e. having plenty of cash in the bank, reducing debt, and consistently growing profit margins year-over-year. If you’re aiming for an IPO, you’ll need to do even further planning. Depending on the type of exit you take, you’ll also need to consider whether you want to stay involved in some capacity, whether it be in a new role or just aid in the transition.
Know Your Industry
Beyond fundraising and launch, you should step back to get a big-picture vision of your company. Where does your product or service fit into the market? What are the dynamics of your market like? Market conditions should be continually factored into your exit strategy, and with how quickly they can change, you need to have a steady beat on your industry.
Know Your Worth
If you’re aiming for a merger or acquisition, understand the value of your startup will be based on its financial and strategic value. Because there can be multiple valuations depending on the buyer, there is really no one “right” price.
Make the due diligence process for the purchasing company as straightforward as possible by having clear books and records. Having years of financial information available will also help with any counteroffers you’d like to make.
Keep Your Options Open
As your company grows, it may be possible that your exit strategy changes over time, which is why you should explore different options and possibilities. From the beginning, you should cultivate relationships with multiple potential acquirers or merger partners. If possible, find ways to work together in some part.
Prioritize Revenue Growth
It should come as no surprise that startups who achieve profitable exits have demonstrated solid revenue growth. In addition to increasing revenue over time, it’s imperative that you identify revenue benchmarks and funding requirements. To set these goals, consider how much money similar startups in your industry raised, the benchmarks they set and hit, and how much the finally sold for.
Lead the Way Out
Of course, startups and their investors want to sell for as much money as possible, while buyers want to cut a deal that benefits them. Oftentimes, the best way to achieve this balance is to exit when growth rates are high, rather than when the startup is very profitable.
No matter which exit strategy you decide is best for your business, one thing remains true for all successful startup exits: proactively planning your exit strategy can help increase and optimize your exit options.
Interested in raising capital for your startup? Apply today. Once we receive your application, we’ll be happy to discuss what option may be right for your business.