As companies reach a certain point in their growth, an exit strategy can be an important milestone or the next natural stage in the business evolution. It’s important to consider investments that can help to scale the business and expand distribution to get to the next level or bring in new management, for example through a merger, acquisition or capital raising. Here’s a summary of why an exit would make sense and what founders should be thinking about from our recent LaunchTalks founder roundtable. Check out these other event posts to learn more about timing and risks around an exit, what founders should be thinking about and how to prepare your company for an exit.
Companies are motivated to exit for a number of reasons:
- Economic factors: Founders may have a lot of wealth in their company and want to de-risk, gain some partial liquidity or bring in growth capital. Outside investors may drive the desire for a liquidity event.
- Operational reasons: Companies may need the appropriate infrastructure or partnerships to expand. Partial exits allow dilution and the addition of new investors who may be better aligned with the business or provide updated governance.
- Other motivations: Businesses may want to bring in a new partner, potentially a strategic investor who can add expertise or introduce new clients or markets. Sometimes personal reasons factor and founders are just ready for a change or are tired.
“If you are taking VC funding, know that you are going to exit at some point so the capital can be returned right off the bat. VCs have a fiduciary responsibility to limited partners (LPs), who expect returns which are IRR calculated, so there is a pressure to exit in a timely manner (ideally within 5 years).” Tracy Chadwell, partner at 1843 Capital, an early stage fund which invests in technology companies with at least one female founder.
Are you considering an exit? Contact us to learn more about how Launch Warrior can support your leadership team in raising brand awareness and preparing your marketing and stakeholder communications strategy.
Special thanks to our gracious hosts, Debevoise & Plimpton and co-sponsors, Innovative Markets Fintech Power Circle, a group of financial technology professionals driving engagement in relevant fintech issues.