What is an Exit Strategy?
An Exit Strategy is the plan by which a company’s founders and investors intend to sell their equity stakes to realize a profit. This is the single most important document for your investors, as it dictates how they will earn a return on their capital.
If you don't have a credible answer for your exit strategy, most venture capital (VC) firms won't invest.
The Two Main Paths The timeline for an exit usually ranges from 5 to 10 years after the initial investment. The primary ways to achieve an exit are:
- Acquisition (M&A): The vast majority of startup exits (90%+) occur when a larger corporation (like Google, Microsoft, or a competitor) purchases the startup outright. This is the most realistic path for early-stage companies.
- IPO (Initial Public Offering): The company sells shares to the public on a stock exchange (e.g., LSE or NASDAQ). This is rare, complex, and reserved for massive, highly profitable, or high-growth companies (Unicorns).
Secondary Sales A less common exit is a secondary sale, where existing investors or founders sell some of their shares to a new private buyer (like another VC firm or a larger private equity fund). This allows early investors to realize some profit without waiting for a full company sale.
The UK Context Many successful UK-based tech companies target US companies as their ultimate acquirers (e.g., DeepMind to Google, SwiftKey to Microsoft). This means your exit strategy often requires thinking globally from day one.
Key Takeaway: An exit strategy proves you are building a company, not a hobby. It assures investors there is a pre-defined route for them to achieve a substantial return on investment (ROI).
