Exit is one of the most important events that can occur in the life of a startup or start-up, sometimes, because this means its end as such. Normally, this concept is associated with the sale that is made of the startup to another company. However, it is a broader term that can bring together several processes and have different meanings.
The English word 'exit' corresponds to 'exit'. Basically, it is any method that helps an entrepreneur or investor to abandon their investment or shares in a company. Thus, you can also consider a merger, another partner or venture capital firm taking over its share and even having the company go public. In addition, we must not forget that the liquidation of a company can also be considered as an exit.Statistics suggest that 90% of corporate investments tend to have losses. For this reason, investors are often advised to diversify their investments to have more possibilities. This makes some people sometimes want to get out and there are movements. In other words, if you invest, it is very likely that at some point you will also want to divest. In today's article, we delve into four very important factors surrounding the exit of a startup:
- The importance of planning an exit from the moment the first partner pact is made- Due diligence, as a litmus test- Exits are usually seen as a sign of success, although they are not always like that- Exits do not always imply the departure of the company's founders
Plan an exit of the startup based on the partners' agreement
How do you plan to exit a startup? Unlike what is popularly believed, this possibility is not prepared on the fly, but can be planned practically from the beginning of a society. Sometimes, some points are even defined in the partner agreement. The fact that this starts to be considered from the beginning does not mean anything, but rather it is a way of anticipating possible problems that arise in the future. We must try to define what can happen based on the nature of the company and its business models and to reconfigure this strategy or contingency plan in successive partner agreements.What happens if a co-founder is considering selling his share? What happens if an IPO is sought later on? Would it be an indispensable condition for the sale if the partners were integrated into the new company? Can only certain units of the business be sold? It's a good idea to answer all of these questions in advance, even if things change later on.In some cases, it is very clear that a project was born with the intention of selling itself., so here the exit would be very well defined. For example, in the case of a startup with a local business that aspires to be acquired by a giant from another country that is dedicated to the same thing, but has no presence in that market. If this is not the case and the company seeks to grow to be internationally competitive, it may not be advisable to detail the exit planning too much, because it can be very distant and many things can change along the way.
Due diligence, the litmus test
The document that is usually indispensable just before preparing an exit is a due diligence. This is a report made by a third party (auditing or consulting) that shows investors that the company's accounts and numbers are true and there is no trap or cardboard. This document also talks about possible risks or weaknesses. On the side of entrepreneurs, they should know what objectives potential buyers intend and what they intend to do with the company. This is essential, because in some cases co-founders stay with their companies for at least a while.
The exits of startups: an image of success even if they have meant losses
In the entrepreneurial world, success in the sense of sale is also often used as a kind of medal that venture capitalists and entrepreneurs wear. If a firm has achieved many successes from its investees or if a co-founder has accumulated several successes over the course of his career, it usually has positive connotations. It may even have happened that some venture capital firms have failed to multiply their investment when the exit occurs and until they have made losses, but they still brag about this procedure. Why do they do it? In reality, the fact that a startup is purchased means that there is another company that has been interested in it and that, in the face of the gallery, leads us to think about their good eye or judgment when looking at projects.
Startup Exits Don't Always Mean the Founders' Departure
It is common that, once the purchase or merger has taken place and, therefore, the exit has become effective, entrepreneurs must remain part of the company for the first few months in order to facilitate the transition and to help establish the bases that allow the growth of the project in the medium and long term. In cases where the merger or acquisition of the startup is carried out with the intention of benefiting from its talent, the founders do not abandon the project at the time of the purchase. In these cases, the usual procedure is that they can stay with the company either by leading a new team specially designed for them and made up of part of their former employees or some project or department that already exists in the buying company to which they can contribute their vision and experience. More: How do you consider the distribution of capital in a startup?Are you looking for a private investment round?
