Investors invest in a startup intending to earn back multifold times their actual investments. But, some startups tend to lose their grace during their startup journey or go into losses. So, many investors and entrepreneurs decide to exit the present venture to either start a new one or to join an existing one.
Any investor don't want to use any exit strategy, here are some exit strategy in business plan that can be followed by investors as well as founders, to minimize losses and maximize profits.
In this process, startups sell their stake or part of the business to the public for trading. The advantages behind this process are, first, it increases liquidity or cash in hand. More reputation and more anticipated ROI will result in more trading price. Second, this cash in hand can be used to buy stakes of companies which are privately held and are facing a roadblock. Also, many companies going for an IPO sometimes buys smaller companies working in the same domain, to enhance their value and the money required to buy these small counterparts come from an IPO. This can be considered as a nice exit strategy in business plan by investors.
Mergers and acquisitions can go both ways i.e. A company can merge or acquire other smaller counterparts or can get itself merged or acquired. The basic reason behind this process is to maintain cash flow and to keep the company afloat.
Companies with drying investments and facing tough competition in the market, choose this process. A company acquires others, to increase its workforce working in a specific area, to improve its dominance in a market or to scale itself. The amount an investor receives directly depends on his stake.
It depends on the investor to either stay or use this as exit strategy, so to decide this an investor notes down three important things,
- Will the company acquiring the venture, handle the venture properly or will it fade away with time?
- Will the venture survive after the acquisition i.e. will it lose its grace or its niche?
- Will the valuation increase?
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Many startups when facing a cash crunch, raise investments in return for a stake. So, when a startup is to be sold completely, many entrepreneurs and investors tend to sell their entire stake in return for cash. This results in cash for a seller and complete control for a buyer, who then can change things accordingly.
Most entrepreneurs follow this rule if they have a successful venture during their initial stage of life. This money sometimes used to start another startup, without actually facing a cash crunch at the initial phase. This exit strategy in business plan is also followed by an entrepreneur who wants a complete hold of his/her startup.
The firms that can maintain a high market share in a low growth industry, in return of paying dividends to its shareholders. They have enough cash flow to stay afloat for the future where they see themselves in profits. Instead of exiting, these startups aim for profit by upping their sales figure. But, in some cases, an investor demands to opt-out, so than these ventures provide them with a refinanced plan with better offers. They tend to cash in on their products, so they are often termed as “Cash cows”.Well established organizations who want to reinvest their profits for upscaling themselves, follow this procedure.
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At times, the talent behind a successful product sparks greater interest than the product itself. This exit strategy happens during the initial phases of the startup, often leading to the closure of the startup. The employees are hired by a larger organization, on a much higher pay scale along with various other perks. Thus, the buyer company ends with an enviable workforce that becomes an acquisition target for the rivals.
Selling it to a friendly
It is a satisfactory way to sell your business and exit from the market as it is going to be a friendly face, with whom you will sell it. It occurs in family businesses where one family member passes the business to another member. The interested parties can be a family member, acquaintance or any knowing member. The face is selling your business to a friendly face will give you a satisfactory feeling that your business is in good hands. This is easy exit strategy in business plan as compared to others.
Liquidation and close
Liquidation is the process in which all the assets of a company are sold over in the market to liquidized it in the form of cash. When a business decides to go liquid, the prices of all bits invention goes down in the market so that it sells quickly. The proceeding is used to repay all creditors and whatever is left over is divided between partners. This might be the most painful exit strategy of all.
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It is a rather unconventional yet conventional way to keep your legacy alive. If you are that businessperson, who wants to keep their legacy alive, then it can be a convenient way for you. In this method, you can sell your business to your employees. This will the business will have its working going on as usual. The employee will have the idea of all the details both intimate and general and hence, it will be easy for them to regulate the business, the way it was already moving. Also, it won't hamper the production rate of it when the owner will be selling it. Giving it to the family is also can be considered but since there are chances of family rivalry or lack of knowledge, that won't be the resulting beneficiary.
Seller always wants to sell his venture for maximum money and a buyer wants to buy it for an affordable price, so when a balance between both of them is struck, it is the correct time for an exit. It is advised to plan an exit strategy and should be mentioned in the pitch deck. This makes it easier for both owners and investors and doesn't come as a shock to both the parties.