What are the types of exit strategies?
There are many different types of exit strategy, but here we are going to focus on four of the most common. These are:
IPO (Initial Public Offering): Many startups hope to use an IPO to raise capital. This is where shares in a company are offered to the public for an agreed amount. To reach this exit strategy you will want to ensure that the business is in good health and shows great promise for future growth. If its products can capture the imagination of a demographic then it can be an even more desirable prospect for new investors. This can be a quick way to exit early on within the development of a startup company.
Merger: If a startup has shown that it has, or will, command a large market share within a niche, a competing company may wish to merge with it, usually to the benefit of both organizations. This allows both entities to share costs, resources, and talent to generate profits which would have been prohibitive on their own.
Acquisition: A common goal of many startups is to be the next innovative company to be snapped up by industry giants for a substantial amount of money. This involves having a solid proof of concept or prototype service/product in place in order to show the effectiveness of what your startup has created. Investors can then cash out, often making back their investment many times over. It should be noted, however, that not all acquisitions, or mergers for that matter, are happy occurrences. In some cases it could be that only a portion of an investment will be recouped and a loss made.
Liquidation: As stated above, not all exit strategies are implemented during the best of times. In some instances it you may need to liquidate a startup and cease all operations. Assets can be sold on helping to ease the impact of such a drastic decision. Bizarrely, a startup could be making losses and yet in liquidation create a profit for an investor due to the valuation of its composite parts.