Exit strategies for innovation start-ups
Common exit strategies for innovation start-ups, including acquisition and IPO, and how to plan for exit
For many innovation start-ups, exit is the ultimate goal. The term 'exit' refers to the method by which you (or your investors) get a return on the money invested in your business. This generally happens after several years.
What does it mean to exit a start-up?
In relation to start-up funding, exiting usually means:
- selling the entire business
- selling just the investors' shares in it, so that they can realise the value of their investment
Ideally, you will want to develop an exit strategy in your initial business plan before you actually go into business. Often, you won't be able to raise money from outside investors without an exit strategy.
See exit strategy: key considerations when starting a business.
Common types of start-up exits
For many start-ups, the most obvious exit is via acquisition. This is when another company buys all or most of your own business and takes over control of it.
Read more about business exit strategy: selling your business.
There are other types of exits too, including:
- refinancing - selling to a different investor, such as a venture capital company
- merger - uniting two companies into a new one to gain market share or expand reach
- initial public offering (IPO) - first time selling shares to the public management
- buyout - selling to the company's existing management
The ideal timing for these events will depend on the success of the venture, the need for more finance, investor requirements and market conditions.
What is a good exit strategy for an innovation start-up?
A good exit strategy will give you a way to either:
- cash out the investors
- decrease or discharge your stake in a business and make profit
- limit your losses, if the business is not successful
It's never too early to start planning your exit strategy. Your strategy will direct many of the business decisions you make, including:
- how you run your company
- which partnerships you pursue
- how you establish your financial reporting system
- what funding choices you make
While exiting most often refers to money, you may need to decide on an exit route for yourself as well. For example, you may want to exit the business:
- to realise the capital you have built up in it
- to start a new venture with a new idea
- because you may not be the right person to take the business forward
For more information, consider your exit strategy when starting up.