Exit Strategies for Investors of Startup Businesses

October 18, 2018

technology

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Of all parts of the investment process, the exit strategy is undeniably the favorite of angel investors and entrepreneurs. The exit strategy is when a venture capitalist or entrepreneur intends to cash in on an investment.

There are different forms of exit strategies that investors and entrepreneurs to plan out in order to get that return of investment.

1. Initial Public Offer

For startup businesses, an exit strategy could be the Initial Public Offer (IPO) wherein a part of the business is sold to the public in the form of shares. This way, entrepreneurs are reimbursing investors within their own startup. Aside from that, the business gets more access to liquidity for investors and more chances to acquire other companies.

2. Mergers and Acquisitions

Startups can do well with exercising the option to merge with another company if problems with cash flow or liquidity arise. With mergers and acquisitions, the new business stays afloat and provides security among investors.

3. Private Offerings

Another exit strategy is to conduct a private offering of the business’ shares to individuals or a select group of investors to raise funds, which is more cost effective because brokers are not required. This can be done with crowd funding websites and real estate. The private offering is not registered with Companies House, and are exempt from required reporting arrangements and allows for existing shareholders to be bought out in a new fundraiser round.

4. Cash Cow

Cash cows are firms that can command a high market share in an industry dominated by low growth. They are able to sustain enough capital to stay afloat and have increased profits over the years to pay dividends to investors and shareholders by cashing in on their products.

5. Regulation A+

Regulation A+ is similar to IPO. The business owner can put your startup company on an exchange after qualifying. The entrepreneur can benefit from raising money and conforming to particular stipulations laid down by the Companies House without having to publish accounts publicly or file other mandatory paper works that would be required of an IPO.

6. Venture Capital

A good way to secure investors is to keep the cash rolling into the startup. Often, a venture capitalist would invest large sums of money into businesses and startups that are deemed worthy of note. Although this takes time for the investment to mature, it is able to provide a steady source of cash to create more investments, expand development, and attract other wealthy investors who see the potential for high returns in the future. More real estate crowd funding companies are going into venture capital.