As a startup entrepreneur, you’ve probably spent years building your business from the ground up. While it’s easy to focus on development and daily operations, it’s equally crucial to think of your exit strategy early on.
Unfortunately, exit planning is one of the most overlooked and misunderstood aspects of business. In fact, only 20%–30% of companies that go to market are successfully sold.
No matter what your goal is, a well-thought-out exit plan can land your startup in good hands and get the most value out of your investment. In this guide, you’ll learn about effective startup exit strategies to help you identify which path makes the most financial sense and aligns with your circumstances and long-term goals.
7 Startup Exit Strategies to Consider
Your chosen strategy can significantly impact your startup’s financial future. Here are some of the most common exit strategies and their implications:
1. Initial public offering (IPO)
For fast-growing enterprises, taking your company public is the best exit plan. When you choose an IPO exit strategy, you potentially raise capital by selling your firm’s shares on the stock market.
A major financial upside of an IPO exit is you get to maintain a portion of ownership, which lets you benefit from your company’s future growth while cashing out.
But there’s a catch: it can be a costly process. Meeting quarterly earnings can also be stressful, which explains why some prefer to keep their exit private.
The bottom line is that an IPO exit can be a lucrative choice. However, it requires firm financial health and market stability. If your business has the growth and revenue to support it, an IPO is worth considering.
2. Merger and acquisition (M&A)
If you’re considering selling your startup to a larger company, merger and acquisition (M&A) is a strong and popular exit strategy. Depending on the buyer, this plan lets you exit quickly by offering you stocks, cash, or a combination of both. An advantage of an M&A deal is you can capitalize on a strategic buyer’s interest in your startup’s assets, technology, or market position.
Unlike IPOs, M&As are often more direct and involve fewer restrictions. However, the financial success of this strategy still varies depending on the deal structure.
So, be specific when negotiating terms since they will define how much control you have, how much the acquiring company will pay you, and what happens to your team post-acquisition.
3. Private equity buyout
This exit strategy can ensure your startup’s continuous growth. Here, a private equity corporation purchases most or all of your business to restructure it for efficiency and increased profitability.
However, the downside to a private equity buyout is the possibility of losing control over daily operations.
This exit is not IPO-ready but can be financially rewarding if the company has a strong foundation. It can still be a great option if your objective is to step back while securing a solid financial return.
4. Strategic alliances or partnerships
In this exit strategy, you sell a part of your business or partner with another firm to share resources, technology, or markets. A strategic alliance or partnership provides you with the financial flexibility to maintain ownership while benefiting from the partner’s strengths.
Although this may not provide the financial perks of an IPO or M&A, it can lead to gradual and more sustainable growth over time. The critical financial consideration is ensuring the partnership leads to synergy and long-term profitability.
5. Management buyout (MBO)
In an MBO exit, your startup’s existing management team purchases the business from you to continue its operations. Because of its prior exposure to and experience in the company, the new management can fill in the gaps as they oversee the day-to-day.
This exit plan can help you increase capital. It also works best for startups with a stable cash flow since the new management often finances the buyout through loans and deferred payments.
Management buyouts are an attractive option since they include a smooth transition. But it’s also crucial to make sure that the next manager or leader is genuinely interested in the role. Remember to negotiate terms that guarantee adequate compensation for your years of hard work.
6. Liquidation
The simplest yet often least attractive exit strategy is liquidation. This path is common for failing startups, which involves selling off the company’s assets and closing down. All earnings go to paying off the company’s debts and shareholder obligations.
While this is a quick option, it usually results in lower financial returns than other strategies. Liquidation is necessary if the startup isn’t profitable or market conditions cannot find a potential buyer.
While it may not be the ideal or high-value exit strategy, liquidation is easier to execute than other strategies like acquisition. It also allows you to walk away with something, albeit less than what you’d earn in a sale or IPO.
7. Secondary market sale
If you’re not ready for a complete exit, a secondary market sale is a good option. This strategy involves selling your shares to investors or other firms while the company remains private.
The financial upside is flexibility—you can exit some or all of your position depending on market conditions. It provides liquidity without pressure to go public or sell to a strategic buyer.
On the downside, secondary market sales are often subject to regulatory and contractual restrictions. You’ll want to consult a financial advisor first to confirm if this strategy aligns with your objectives.
Closing the Deal: Which Exit Strategy Works Best for You?
Every entrepreneur hopes for a smooth exit that validates their efforts and secures their startup’s financial future. Selecting a suitable exit strategy is crucial; you can opt for an IPO, a buyout, or an acquisition. Since each path comes with its rewards and risks, it’s vital to fully grasp what the strategy can offer.
Ideally, you align your exit strategy with your long-term goals, the market conditions, and your business’ financial health. It can be challenging to make the right call, and that’s where having expert guidance can make all the difference.
Tencap Wealth Coaching provides tailored advice to help you navigate your options and make the most financially sound decision for your startup’s exit. Whether you’re looking for growth, stability, or a practical exit, we’re here to help.
Check out 7 Reasons Why Our Advisory Services Are Worth the Fee, or contact Tencap Wealth Coaching for expert advice.
Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
