Is your start-up growing rapidly? And did you just fall in love with #startuplife? Then a large corporation is probably not where your passion lies. Not to mention your investors, who now want to see their return. So if you are considering leaving your company, prepare well with an exit strategy.
Why is an exit strategy important?
It goes without saying that this is an important moment in the life of your company. The better you prepare it, the more likely it is to end well. For you, for your investors and for the continued existence of your business. Being forced to make hasty decisions can cause you to panic and make wrong choices. And that’s what you want to avoid in an exit scenario… right?
Preparation is key, they say. If your administrative legalities are already written down practically in readiness for the day, negotiations with the various parties will take much less time. Moreover, the value of your company can be a lot higher if there is a well thought-out exit strategy behind it.
How do you take it?
Most entrepreneurs choose from these three options:
1. Sell, sell, sell
The main exit strategy is to sell your start-up to a larger company. You get (if all goes well) a large sum since you sell your shares, which most entrepreneurs pump almost immediately into a new venture. The exit is also the moment when the investors, such as venture capitalists and business angels, get their money back.
Typical of this exit strategy is that key managers and employees usually stay. For example, the founders often become the CEOs. When they do finally leave the story, they often stay for a while to make the transition smooth.
Large companies usually acquire a start-up when they want to expand their core activities. Buying your expertise is much cheaper than having to figure out and develop everything from scratch.
2. Joined forces
Mergers with similar companies are also common. In fact, it is an exit strategy that offers many advantages:
- Your business is growing; your capital and number of employees are increasing significantly.
- Your joint expertise is growing; you can undoubtedly learn a lot from each other and your know-how may even be complementary.
- You have a greater chance of wiping your competition off the map.
One of the most famous examples in our country is the merger between Delhaize and Albert Heijn, which helped make 2015 a top year for mergers.
3. To the stock market, and beyond!
A third option is to take your company public. The advantages speak for themselves: not only do you raise a lot of budget, an IPO also provides you with the necessary brand awareness that makes your company grow even stronger afterwards.
Linked to that, a publicly listed company is going to attract new interested employees faster, who in turn you can sell shares to motivate them even more. As your company grows, the value of their shares grows with it. Nice incentive, right?
Considerations about an exit
For many companies, an exit strategy is such a big deal (literally and figuratively speaking) that it is often already included in the business plan, even before the start-up is really successful. That is something typically American and is not always appreciated in Europe. Some say it shows an indifference to what you create. Alain De Taeye (Management Board of TomTom), among others, expressed his dissatisfaction with this mentality in an interview with Bloovi:
“It used to be every entrepreneur’s dream to build a multi-million dollar company. Now selling their start-up to a major player is exactly the end goal. If you have a good idea, why not implement it? You don’t have to sell it, do you? In itself, start-ups have good ideas, but I miss a bit of a long-term vision. And that’s not only the case in our country: there are few companies that make it to the end. We sell the lot when it gets interesting.”
”We’ll sell the lot when it gets interesting.”
On the other hand, it is simply the most logical solution for some. Especially when you see start-ups in similar industries going over head, sometimes leaving the sinking ship in time is the best choice. Maybe someone with more resources can make it sail again. Would you rather be the founder/CEO of that start-up that went belly up or that entrepreneur who was smart enough to sell his company on time? It’s a choice you make.