Startup Exit Strategies: Planning Your Path

Which Exit Strategy Will Be Right for Your Startup?

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 startup exit strategy may not be top-of-mind right now, potential investors will want to be in the loop on your plan, as this will influence the strategic direction your business takes long-term.

Entrepreneurs must carefully plan their exit strategies to help meet their goals, potentially reward investors, and pave the way for future growth. Over the years, the landscape of startup exit strategies has evolved, with initial public offerings (IPOs) and other exit strategies like Special Purpose Acquisition Companies (SPACs), mergers and acquisitions, or even remaining private all remaining viable options.

In this article, MicroVentures breaks down how to set yourself up for success even with the evolving nature of exit strategies and the shifting business landscape.

How to Plan a Startup Exit

While steps can differ depending on the route you go, here’s how entrepreneurs can lay the groundwork for a smooth exit right from the beginning.

Set 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.

The Evolution of Startup Exit Strategies

The Traditional Route: Initial Public Offerings (IPOs)

For many years, IPOs were the gold standard of exit strategies. They offered companies the opportunity to raise substantial capital, increase brand visibility, and provide liquidity to early investors.

However, IPOs have become increasingly challenging for startups to pursue due to the rigorous regulatory requirements and associated costs. The process can be time-consuming and demand substantial financial resources, making it less accessible for early-stage ventures. In addition, entrepreneurs may give up some control in the company and are subject to additional reporting guidelines once they do conduct their IPO.

While IPOs are still occurring and many companies are preparing for IPOs, many entrepreneurs and startups have considered additional exit strategies apart from the traditional IPO over the last few years.

An Alternative: Direct Listings

Direct listing, also known as a direct public offering (DPO), is an exit strategy that allows companies to directly list their shares on a stock exchange, making them available for public trading. Unlike IPOs, direct listings do not involve the issuance of new shares or the involvement of underwriters who typically set the initial price and market the offering.

One advantage of direct listings is that they can provide immediate liquidity for existing shareholders. By allowing them to sell their shares directly to the public, direct listings can enable entrepreneurs, employees, and early investors to unlock the value they have built in the company. This liquidity may be beneficial for individuals seeking to diversify their investments or realize financial gains.

Moreover, direct listings may offer transparency in pricing. In traditional IPOs, the initial share price is determined through negotiations between the company and underwriters, often resulting in a “pop” in the stock price on the first day of trading. This pop can lead to a disparity between the price at which early investors sold their shares and the price at which new investors acquired them. In contrast, direct listings allow the market to determine the share price from the outset, helping foster a more equitable and transparent process.

It’s worth noting that direct listings were initially more commonly pursued by well-known, established companies with strong brand recognition and a large existing shareholder base. However, recent regulatory changes and market developments have made direct listings more accessible for a wider range of companies, including startups and early-stage ventures.

Direct listings are not as common as IPOs or other exit strategies; however, they are an equally viable option for startups.

A New Path: The Rise of SPACs

In 2020, a newer exit strategy rose to prominence. Special Purpose Acquisition Companies, also known as SPACs, seemingly took the world by storm. Offering an alternative path to going public, SPACs are essentially “blank check” companies created solely for the purpose of merging with or acquiring an existing private company, effectively taking it public. This approach is one that can provide several advantages for entrepreneurs.

Firstly, the process may be typically faster and less complex compared to traditional IPOs. By merging with a SPAC, companies can bypass the lengthy and arduous process of filing with regulatory bodies, such as the Securities and Exchange Commission (SEC). This streamlined approach can allow entrepreneurs to capitalize on market opportunities swiftly and efficiently.

Secondly, SPACs often come with experienced management teams or sponsors who may bring expertise, industry connections, and a network of investors. This can be particularly advantageous for early-stage companies looking to leverage the knowledge and resources of seasoned professionals.

Moreover, SPACs may provide an attractive funding alternative for startups. While IPOs typically require significant existing revenue and market capitalization, SPACs are more flexible and allow companies at various stages of growth to go public. This accessibility opened up the exit strategy landscape to a broader range of entrepreneurs, helping to democratize the process to some extent.

SPAC Stats

Q1 2021 saw around 300 SPACs raising $100B. However, as the investment world slowed down in 2022 and 2023, SPACs fell from prominence.

In 2025, the SPAC market saw a resurgence, albeit well below 2021 levels, with nearly 100 SPAC IPOs conducted in the first three quarters of 2025.

The Benefits of Mergers and Acquisitions

While IPOs, Direct Listings, and SPACs have had the tendency to dominate the conversation surrounding startup exit strategies, entrepreneurs should not overlook the advantages of mergers and acquisitions (M&A). M&A can allow businesses to join forces, combining resources, expertise, and market reach to help unlock new opportunities and accelerate growth.

Mergers offer the potential for synergies that can help drive growth. By combining complementary strengths and capabilities, companies can leverage economies of scale, reduce costs, and increase efficiency. This synergy may result in enhanced product offerings, improved market positioning, and a competitive edge in the industry. Through M&A, entrepreneurs can tap into new markets, expand their customer base, and drive revenue growth.

Acquisitions, on the other hand, provide an opportunity for entrepreneurs to exit the company altogether while ensuring the continuity of their business. By selling their company to a larger player, founders can cash out their equity and find an exit. This exit strategy may be particularly appealing for entrepreneurs who have achieved significant growth and want to move on to new ventures or pursue personal goals.

Other Startup Exit Strategies:

Beyond the traditional routes of IPOs, SPACs, direct listings, mergers, and acquisitions, entrepreneurs can explore additional exit strategies tailored to their specific circumstances.

These may include:

Management Buyouts (MBOs): In cases where founders and management teams have a strong desire to retain control of the company, MBOs allow them to buy out existing shareholders, including venture capitalists or private equity investors.
Secondary Sales: Entrepreneurs can opt for secondary sales, where they sell a portion of their ownership stake to institutional investors or private equity firms, providing liquidity while still maintaining a level of involvement in the business.
Licensing and Royalties: For companies with innovative products or intellectual property, licensing agreements can be a viable exit strategy. By licensing their technology or patents to other companies, entrepreneurs can generate ongoing royalties and revenue streams.

Final Thoughts

The world of exit strategies has undergone a remarkable transformation in recent years. While IPOs remain a prestigious and sought-after path, the rise of SPACs, direct listings, and other exit strategies have provided entrepreneurs with alternative routes to going public, offering speed, flexibility, and access to experienced professionals. Additionally, strategic partnerships, acquisitions, and other alternative exit strategies may provide unique opportunities for entrepreneurs to achieve liquidity, help fuel growth, and pursue new ventures.

As an entrepreneur, it can be essential to evaluate the strengths, weaknesses, and goals of your business to select the most suitable exit strategy. The evolving landscape presents a range of options to consider, and with careful planning and guidance, entrepreneurs can navigate the exit strategy landscape successfully, achieving their financial and professional objectives.

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.

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