When to exit a startup?
There are any number of reasons to exit your investment, but such a decision must be done in a way and at a time which best suits you as an individual, and the business as a whole.
Recession: All business is susceptible to the current health of the economy, both global and domestic. If a recession is anticipated, it could be a good time to sell your investment in order to avoid more substantial losses in terms of value in the future.
Technology: New technological advancements could be on the horizon which will leave your startup vulnerable, or perhaps even redundant. If this is the case it may be best to sell your investment on to someone else who has the resources to counteract this development.
Trends: Consumer buying trends could signal a decline in future revenue and business value. This is especially true if a startup is solely dependent on a single niche, marketplace, or product. If sales are diminishing due to this then it may be time to implement your exit strategy before further losses are made.
Lack of Passion: In some cases a business may be performing adequately, perhaps even exceptionally, but an investor may still decide to exit. This can be due to boredom or a sense of stagnancy. Freeing up capital for more exciting investments is a legitimate reason to exit a startup.
Offers: Whether a specific offer has been anticipated or not, receiving an offer which meets your expectations of the value of the business may tempt you to sell your investment. Often a startup is invested in with an aim to exit early once a suitable offer has been attracted.
Need: It’s not pretty, but perhaps your cash flow may not be as healthy in the future. You may need to release equity on an investment in order to meet your financial agenda. This scenario often occurs quickly and without much warning, so it is important for an exit strategy to be in place should the need arise.
Retirement: It may be that you are looking to retire or simply enjoy the fruits of your investments. In this case you may wish to extract all of your capital out of a startup.
Altruism: You could be in a situation where you deeply care about a startup, and you want what’s best for the business even if that means you exiting. It could be the case that there is another investor or a potential merger on the cards which could take a brand, product, or service to a level you are currently unable to.
Opportunity: Lastly, you might require capital to invest in a new, even more lucrative business opportunity. In this situation you could exit from a startup which does not have as bright a future in order to invest capital in a potentially more successful project.
Regardless of why you wish to exit your startup investment, it is critical that you have different options in place in case you need to reevaluate your investments quickly.