The EIR Corner

It may seem a little strange. Your business has barely begun and yet you are asked to look forward a few years and describe how you plan to cash out and get the big financial upside.

Your “exit strategy” is important to angels and venture capitalists because it outlines the timing and feasibility of earning a return on the investment they made in your company. For example, a merger, acquisition or an initial public offering (IPO) five years from now could provide the liquidity needed for a profitable investor outcome. Moreover, investors want to know that the return from the investment in your company will have a significant and positive impact on their overall portfolio.

The exit strategy you propose should be based on your defined market, business model and scalability assumptions. It should be believable and realistic. Providing a plausible exit strategy early in your relationship with investors exemplifies your business acumen and demonstrates you appreciate their motivation, interests and partnership.

One last thought. You should define your exit strategy, but not dwell on it. As most investors will tell you, companies are bought, not sold. Real exit opportunities will result from your efforts to build a profitable and rapidly growing company.