The changing dynamics of startup investment impacted by the COVID-19 pandemic have pushed investors and business to pivot their business.
But exit strategies that eye on mutually-beneficial remain critical for both investors and startup firms to discuss from early on.
As exit discussions can be seen as negative, the dynamics and challenges from an exit strategy should be seen as positive.
An exit is essentially the first step of a potentially long business journey. When it comes to exits, there is either a true exit (where a company is acquired out right), or a partial exit (where all the funds and capital get released as a result of that).
There are three key things that both investors and founders need to hash out from the start. They are:
- Good investment returns (paybacks) always need an exit strategy.
- Investors will shy away from startups that have no exit plans.
- Preference by entrepreneurs for startup roles that avoid the big-company roles.
As a corporate venture capital investor, UMG IdeaLab sees an exit as one of the means to provide funding — when and if needed — and as a stepping stone to invest in different startups.
If we combine startup entities in an M&A, we need to consider how they can synergise and the potential financial benefit from the merger.
An M&A should also take into account the shared visions and objectives of the startups that we try to grow that contribute to users.
As for partial exit — or a complete exit — it requires a lot of preparation. It is important that all shareholder agreements and data room are properly sorted in advance to ensure proper and responsible data display.
These are all important steps to ensure that the startup you have invested in is clean and remains attractive for other investors to potentially step in.
The process of listing a company should be considered as a capital strategy to achieve the next business milestone.
Other options that can be taken into consideration as exit strategy — but not recommended due to possible negative perceptions — are asset liquidation and cash out investors.
Source: e27
