We regularly receive emails from entrepreneurs and business owners who have questions about business plans, raising capital and starting a business. In the UK, we recently made contact with a man who was preparing a plan for his startup and who did not know how to define an exit strategy for his potential investors.
I wanted to share part of the answer we prepared in the hope that it could help you in your business plan.
"Hi James, thank you for your visit to our site and your kind words, I'm answering your question about exit strategies, I'll start by telling you that you do not have to spend too much time in your plan talking about What is important is that you clearly explain to your reader / investor that you intend to offer him the opportunity to exit his investment during the five-year planning period in him. providing a type of liquidity event used by two of our clients:
Investors who provide the capital that is the subject of this document will have several exit options available to them. Management believes that the most likely product will be the sale of the company or the transfer of its intellectual property to one of its strategic partners or another company. Other alternatives that could create a liquidity event for investors could be a redemption of outstanding shares with cash on the Company's balance sheet or through the exchange of shares with long-term capital provided. by an institutional lender.
We will pursue several possible exit strategies:
IPO: Depending on market conditions and the growth of our product lines, an IPO may be feasible in 2-3 years.
Be Acquired: This is a fragmented market that will need to be consolidated in several years as more and more companies strive to integrate X technologies into their business processes. Examples of companies likely to benefit from the acquisition of ABC include Oracle (Nasdaq: ORCL), SAP (NYSE: SAP), IBM (NYSE: IBM), General Electric (NYSE: GE) and Autodesk (Nasdaq: ADSK).
Stay private: If market conditions moderate, we plan to continue operating as a profitable private entity, distributing dividends to shareholders until liquidity opportunities become available.
Although these examples of exit strategies may not be relevant to your business, we hope that they will provide you with a good model to follow in your business plan. We are big supporters of the simplicity of the exit strategy section of your plan, especially for start-up companies where a potential exit is in 5 years or more.