Exit strategy planning
Share this article:
Post on twitter:
You do not have any control over when your company will exit. As an early-stage company, you should focus on building a great organization. The marketplace is very fickle—companies that would have been acquired last year might not be able to get meetings with potential acquirers this year.
Common exit strategies involve either an initial public offering (IPO) on a public stock exchange (e.g., TSX, NASDAQ) or a merger and acquisition (M&A) with a player in your sector. The acquisition can be either for cash, stock or a combination of both.
In challenging economic times, it can be very difficult for early-stage companies to go public and raise financing through the public markets. Most venture-backed exits have occurred via M&A. Visit Canada’s Venture Capital& Private Equity Association (CVCA) and the National Venture Capital Association (NVCA) for the most recent Canadian and U.S. statistics on financing and exits.
Thinking about potential acquirers will help you to identify partners for your business. In fact, merger and partnership (M&P) is becoming more prevalent than M&A. Partners can provide your company with a cash infusion in exchange for a“look-see” into your business. Once you scale the business and become strategic to their company, one of these partners might put an offer on the table.
If your venture is not successful, you may be forced to sell your company for less than you expected. This may include licensing a portion of your technology or selling the intellectual property (IP) to recover as much value for the shareholders as possible.
Key tips for exit strategy planning
- Follow-on investors and investors looking to partner or acquire your company will conduct due diligence on your organization. Make sure that you continue to maintain your books, records and due diligence binders.
- If the public markets are open to early-stage companies, then get out there early on and meet the investment bankers and equity analysts who specialize in and cover your sector. They can help you to determine if your organization has what it takes to raise financing on the public stock exchange. You also have to make sure that you meet the eligibility requirements.
- Remember that an IPO is not necessarily an exit for your investors. Your investors’ shares tend to be locked up for a period of time—typically six months. As well, early-stage public companies have low liquidity. Therefore, once your investors are no longer locked up, they may not be able to find a buyer for the shares.
- You will likely need to engage an intermediary to facilitate an IPO or sell your company. Get recommendations and introductions from advisors, lawyers and accountants to identify the respected agents and bankers in your sector.
References
TSX listing requirements. Retrieved April 13, 2009, from http://www.tsx.com/en/pdf/TSXandTSXVenture_IndustrialRequirements.pdf.
NASDAQ listing requirements. Retrieved April 13, 2009, from http://www.nasdaq.com/about/nasdaq_listing_req_fees.pdf.
Related Articles and Workbooks
The Social Venture Exit Part 1 SEs and SPBs seek to deliver social and financial returns. An exit strategy can structure these metrics and make your venture appealing to investors.
How investors determine the valuation of your business How investors determine your valuation will affect your negotiation of a term sheet.
Balancing the Social/Environmental and Financial Returns in an exit Part of planning an exit strategy is demonstrating the social and/or environmental benefits of the venture.
What is the valuation? The valuation of your opportunity is an integral part of securing investment for your business opportunity.
Understanding liquidation preference and dividends Make sure that you understand liquidation preference and dividends, which can skew exit returns to an investor.
The Social Venture Exit Part 2 An exit strategy for a social venture could consist of merging with another not-for-profit or selling the social enterprise to a for-profit business. These strategies depend on the type of investors, the industry and the timing of the exit.
Related Videos
