What’s Your Exit Strategy?
If you funded your startup through outside investment, then this question will come up at some point, “How do I get my money back?”
So, what’s your exit strategy? You need to have something planned. You always hear about taking a company public with an initial public offering, or IPO. You put your company on the market and it skyrockets and now, all of a sudden, every $1 bill your investors gave to you is worth $15… that’s a beautiful thing.
But it can be difficult for a small business to fit the mold for an IPO—many public companies tout an annual growth rate of at least 20% and bring in hundreds of millions of dollars in revenue per year. The cost can also be prohibitive—in both time and money. The filing process will take months at least, and it is not uncommon for the price tag to carry six or seven digits. With these statistics in mind, it is no wonder that the U.S. Small Business Administration estimates that fewer than 1,000 companies successfully file for an IPO every year.
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With the difficulty of filing for an IPO, another common option pursued by small business entrepreneurs is acquisition. In fact, many people build businesses with the goal of being acquired—some even have a specific company in mind that they’d like to be acquired by and design their products and processes to make this acquisition as attractive as possible.
Lastly, you could look to buy your investors out, but they will want to recoup their money and then some. After all, they took a risk in giving their capital to help you.
So what’s your exit strategy? Being able to answer this question as you start out or look for additional funding will greatly increase your chances of a successful investor search.