Choosing an Exit Strategy as a Startup Founder

Exiting the business is one of the last things that founders think about, but it usually happens, and not always for bad reasons. Sometimes, a business exit is a good step that helps the company thrive even further. 

Preparing an exit from your startup can be challenging, but it is important to ensure success for you and the business. A good exit strategy helps you maximize returns while ensuring profitability and sustainability for your business. This article reviews some top exit strategies founders can explore. 

Understanding Startup Exits and Their Reasons

A startup exit is when a founder decides to leave their company. Unlike employees, founders don’t just stop working when they exit; they either sell the entire company or their shares. 

Exiting a startup is not always bad, especially for the business. A founder can exit their company for good or even neutral reasons. For example, a bigger company can buy it out when a startup becomes successful with a good valuation. 

This way, the founder and all shareholders earn good money, while the company continues to grow and scale under the care of more experienced hands. Many other reasons exist why founders exit their companies. A founder can exit their company when: 

• The company is no longer succeeding

• The business is flat-lining

• The company reaches the point they intended to sell it from the outset 

• The business needs to enter a new stage the founder can’t handle

• The founder's health, family, or other personal reasons prevent them from running it

3 Common Exit Strategies for Startup Founders

A  startup or business exit strategy is a plan for relinquishing ownership of a startup or business, usually to make profits. An exit plan usually involves selling the entire company or some shares. Founders can simply exit by giving up their majority stakes and corresponding authority in the company. 

It is important to plan an exit strategy well ahead of your startup exit to give you a road map and ensure profitability. Below are some popular exit strategies startup founders use: 

Selling the Startup 

Selling a startup is one of the most common and simplest exit strategies. It involves transferring ownership of the entire business and its assets to an individual or company. 

To profit from selling your startup, you must build a strong business. The stronger your business, the higher the price your potential buyers are willing to pay. Selling a startup is the easiest way to exit a startup because it provides a simple transition for you, especially when your business is attractive to potential buyers. 

You can sell your business through a trade sale or acquisition, where another company buys the company, or through a Management buyout, where you sell the current management team. 

Before selling your startup, get a professional to handle your financial preparation and valuation. You can also hire a private wealth management expert to secure personal financial gain and a good return on your investment over the years. Leverage your network and professional help to choose the best buyer to sell your startup. 

Initial Public Offering (IPO)

An IPO is another excellent way for founders to exit a startup. Here, the founder takes the company public and sells its shares on a stock exchange. While this is a very lucrative strategy, it is challenging and unsuitable for some small startups. 

Your success often depends on how the public views your startup. It will only sell fast if they consider it a good startup with great potential and promise. Such perceptions provide higher valuation for your stocks and increase your profit. 

An IPO allows founders to exit partially while providing growth capital and attracting top talent through stock options. However, this strategy involves a long process and requires additional financial reporting. 

IPOs help secure a startup's future. They provide reasonable exposure, visibility, and brand awareness for the business. After an IPO, a business will retain its name and status, providing an enduring legacy for the founder. 

Liquidation

The liquidation strategy is one of the best for struggling startups. In this strategy, the business closes completely, and all assets are sold to pay debts and shareholders.  Liquidation is a final and straightforward exit strategy. It offers a founder a clean break, allowing them to walk away from the business without legal challenges. While the proceeds are uncertain, it is an efficient way to exit any business. 

The downside of this strategy is usually emotional. The founder may experience stigma, as many employees face job loss after a liquidation. However, it remains one of the best options for a failing startup in most industries. 

Endnote

A startup exit is when a founder leaves their startup, usually by selling the startup or their shares. A good exit strategy serves as a roadmap and ensures profitability for founders when exiting their startup. Selling the startup, an IPO, and liquidation are some of the most common exit strategies startup founders use.