Business exit strategy: float your business on the stock market
Characteristics your business will need to attract venture capital investment or for a stock-market flotation.
Floating your business - selling shares on the stock market - can be highly rewarding financially. It lets you realise your investment in the business by making it easier to sell part of or your entire stake in the business.
However, any financial exit from the business is likely to be partial. Potential investors will be wary if you sell all your shares - and you may not be permitted to do so.
Any float will also affect other existing shareholders or investors. The shareholders agreement may give existing shareholders pre-exemption or voting rights which may make a float more difficult or reduce the amount you can realise.
Relatively few businesses can realistically expect to float as they are unlikely to be able to finance the necessary growth to attract investors.
See floating on the stock market and company shares and shareholders.
Venture capital investment
An alternative to stock market flotation is to attract venture capital investment. Venture capital businesses or private investors provide medium to long-term finance to your business in exchange for a share in the company. Venture capital funding can be used to grow or develop the business but may also be a way to facilitate an exit from your business by way of a management buy-out or buy-in or via a stock market flotation.
It is important to check exactly what return a venture capital firm is expecting, and how they plan to realise their investment and eventually exit the business.
Once you have secured funding you'll need to build a record over a number of years of delivering strong earnings and profits - and develop a business plan showing how you'll achieve further rapid growth.
Business suitability
Steps to take to be a suitable business for a flotation or venture capital investment include:
- building a strong management team
- have a robust business plan outlining how growth and profits will be achieved
- setting up a limited company
- developing operational, financial and management systems robust enough to handle both rapid growth and the additional legal requirements of a listed business
- appointing high-quality financial advisers