Simply put, investors want to use your business idea (and the execution of that idea) to increase their wealth. So their objective is to put money into your company in exchange for shares. And when those shares have increased in value, they will want to sell them and get some, or all, of their cash out.
So you need to plan and be prepared to discuss your exit with your investors; how to get to that liquidity event that's going to return them the cash they invested, and some more. They will expect you to have thought this through. You might also want to get some money out for yourself at the same time to buy things and go on a holiday after all that work.
Think of it in terms of an elite athlete. They will train, train, train to reach the top of their sport, win the gold medal at the Olympics and the world title, and then retire. Why? Because once you’ve got to the top, it’s time to do something else.
The need to plan an exit comes as a surprise to some entrepreneurs. But, although your investor may love your business, eventually they will want to realise their investment. That’s why investors don’t usually invest in lifestyle businesses, like a single shop; they want to see growth – usually at the fastest possible rate – and then sell. A shop is a livelihood.
Your exit will either be a sale or a listing, where the shares of your business are listed on a stock market, where they can be traded. To get to a listing you have to have built a pretty sizeable and profitable business. With a listing you may well remain in charge, but there will usually be a more formal board structure with regular performance reporting. Many entrepreneurs don’t find the rigidity of this type of business very appealing, so they go on to create something else.
More likely you are going to sell. And when you do, look out for the earn out. When my business partner and I established our mobile phone business, we knew that we would eventually sell to another mobile phone business. That made the strategy quite simple – develop an expertise that would be desirable to a phone company. In the event another manufacturer, who wanted our development skills, acquired our business.
Don’t be shy or frightened of discussing your exit strategy. Be prepared to embrace it and talk through the strategy with your investors to achieve it.
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