What Are the Best Exit Strategies for Startups and Investors

Most often than not, when startup businesses are running at a loss or they do not have what it takes to continue running the business, an exit is the best choice to take. It sounds like the best alternative because it would rather be disastrous to continue running the business in some cases. The fact that a startup business or an investor is running at a loss does not have to result in the business folding up. There are techniques and methods that such investors and businesses can take which are referred to as exit strategies.

Business experts have advised that the best way to exit a business or an investment is to sell it or offer the business out to interested bigger companies to get a return. There are, however, certain strategies to employ to get this done.

The Need for Adopting Exit Strategies

Different conditions in business could necessitate adopting an exit strategy such as when a business is no longer yielding enough profits as expected or probably if there is a rapid shift in the market trend. In these situations, an exit strategy may be the safest decision to make. An exit strategy also serves as a suitable means to reduce losses in an investment.

Most often as it is the case for a strategy such as mergers and acquisitions (M&A), startups will be able to sell out a certain proportion of the business’ ownership or to give up absolute control of the business to a larger company. Since the larger companies have enough resources to keep the business running, the vision of the business or investment can then be rightly pursued.

The Best Exit Strategies for Your Business or Investment

The kind of exit strategy that you opt for in turn determines the fate of the business or investment. You must go for the best exit strategies as there are several methods of exiting a business. In deciding on the best exit strategy to use, you need to consider first the size of your business. As a startup business, it is advisable to sell out a business to a bigger company so that you get your returns and also be confident that the business you started is now in safe hands.

The following are some of the many best exit strategies that are ideal for your business;

1. Mergers and Acquisitions (M&A)

This exit strategy is perhaps the most common type known by many. It involves the due diligence process whereby a particular share or the total ownership of a business is handed over to a bigger company. This often happens in a situation where a startup company can no longer run the business with the resources it has. The bigger companies, on the other hand, are always on the lookout for startup businesses that have a ready technology that they can acquire and build upon. In the case of acquisition of a startup business, the bigger company pays off the startup business to acquire it and probably its staff.

With the help of technology, due diligence processes can now be easily done with the aid of data room for startups such as DealRoom, Firmex, and the likes.

2. Intellectual Property

This refers to such properties that remain the rightful owner of any business. It includes such identities as logo, patents, trademarks and other intellectual assets owned by a business. They are intangible assets borne out of the human mind and they often differ from one business to the other.

Startup businesses have made it a point of duty to value their intellectual property as a means of exit strategy in case a bigger company wants to acquire the business.

Intellectual Property (IP) valuation for each business is always very high. By estimating your business’ IP value, you will easily get the attention of bigger companies who are interested in what your business does. This serves as a perfect exit strategy for startups. To further make things easier, a virtual data room can be used to serve as a repository for IP valuation.

3. Initial Public Offering (IPO)

IPO is an exit strategy in which a business goes public. The major challenge of this strategy is that it costs quite much for a business to go public. It, however, serves as an effective strategy to sell a share of your business or investment to the public or interested individuals.

Preparing an exit strategy for your business ahead of time is a wise decision to make. When businesses leave it late before planning one, it ends up affecting them by not having the right valuation while selling out the business to a larger company. Even though it may involve costs such as acquiring the service of a lawyer and also making use of a virtual data room, it is always worth the cost to have an exit strategy planned.

Author’s Bio: Lori Wade is a writer who is interested in a wide range of spheres from business to entrepreneurship and new technologies. If you are interested in M&A or virtual data room industry, you can find her on Twitter & LinkedIn or find her on other social media. Read and take over Lori’s useful insights!

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