What is an exit strategy?
Definition: An exit strategy is a plan executed by an investor, entrepreneur, venture capitalist, or a business, looking to get out of investments they made, whether it be liquidating assets, selling stocks, or closing a business.
The goal of an exit strategy is to maximize ROI and value while minimizing losses on the investment.
It is a key component of an investment or business plan, as it sets out the objectives and timeline for ending the investment and returning capital to the investor.
There are numerous types of exit strategies:
- Initial Public Offering (IPO): A company goes public and sells shares to the public for the first time, usually as a way to raise capital and increase its visibility.
- Merger or Acquisition exit strategy (M&A deals): A company is acquired by another company, either in a friendly merger or an hostile takeover.
- Family succession
- Management and employee buyouts (MBO): This is a type of corporate transaction in which the current management team and employees of a company purchase the company from its existing owners.
- Strategic Sale: A company is sold to a strategic buyer, such as a competitor or supplier, who is interested in acquiring the company's assets or capabilities.
- Liquidation: A company sells off all of its assets and disposes of its business operations.
- Secondary Offering: A company that has already gone public sells additional shares to the public, typically as a way to raise additional capital.
- Acquihires: A company acquires another company primarily for its talent and expertise rather than its products or assets. This happens often in the tech industry. The employees of the target company are typically offered employment at the acquiring company, and the target company's operations may be discontinued.
- Bankruptcy: This is the worst case scenario, used when the business cannot pay its debts and resolve its financial problems.