Exiting a StartUp – How to Maximize Your Returns

Most young entrepreneurs don’t fancy running their StartUp forever or take it from a StartUp to a big business and finally a Fortune 500 company. The fact is, after a while desirous investors, market regulations, compliances, taxes and reinventing the wheel every day can take the fun out of running the business. While some like retiring at 40 and turning Angles for others, the idea of starting something from scratch again this time with the cushion of having their own capital is luring.

A decade back it was almost a norm for most StartUps’, majorly in the technology space, to go for an IPO; this isn’t anymore the only exit option. Today most StartUp founders like to exit when they know the company is stable and can fetch them a great price from potential acquirers. However, it is easier said than done, due to the kind of volatility we have seen in StartUp valuations in the last few years. So how do you make exit at the right time? How do you get maximum for every penny and minute that you have put into this company? Here are some of the things that can help you –

Prepare For End Game While You Start

StartUp exits can be troublesome when all the co-founders aren’t on the same page. While it is possible for one of the co-founders to exit anytime it is better when all of them do it at the same time. So right when you are taking baby steps with your idea it is wise to discuss your exit plan. Set goals in terms of years, valuations or milestones when you would like to make the exit. Of course, you can change based on how your idea/product is being accepted in the market. If you know when to exit, you prepare for it better.

Get The Valuations Right

It is one thing to believe that your company is worth a million dollars and quite another to find investors who would be willing to write that seven-figure cheque. If you are worth the money you claim, you would have multiple investors but if you live in the fancy world it can be a long waiting game where your business also suffers as you no longer put in the same effort like you did earlier. There are two kinds of valuations that you need to know – Financial Valuations (what is the dollar worth of your company) and Market Valuation (that arrive at a figure based on how similar firms are valued and have sold for). These two can be used to quote a price for your business that maximises your returns.

Don’t Ignore Facts & Figures

The first thing that a potential investor would look for in your company before buying it is its financial health. And there is no better way to display this than to work on facts and figures. It would be wise to seek help from a consultant to build a positive data bank. Source all the possible data that would support your arguments of your business growth and also the potential growth in the future. After all, the investor should be able to foresee that there is a lot to be made from your business model in the future and he/she isn’t putting money on something that only has a speculative growth story with supporting facts.

Look For a Seasoned Intermediary

One of the potential wrong paths that most entrepreneurs take is to look for investors themselves. While you may have built a great product from scratch and attracted VCs and Angels on your own, this doesn’t mean you have acquired the right business acumen to get the maximum price for your StartUp. Hiring an intermediary such as an investment banker or a business consultancy service is the way to go about the job. The reason StartUps’ avoid this route is because of the steep fees that intermediaries charge. But these people often help you get the most lucrative prices even higher than what you had expected thus covering whatever fixed fee or percentage of the sale you would have to pay them.

Build Relationship with Acquirers, Avoid Distress Sale

The best way to sell a StartUp to potential buyers is to build a strong and gradual relationship with them. When they have deep insights into the value proposition of your business, they won’t mind paying the price you are looking for. Another advantage of this strategy is that it helps you avoid a distress sale where you end up earning peanuts for your business. In fact, many StartUps’ prefer to sell their stakes to one of their investors in phased manner (keeping aside majority stakes for the last deal) that both helps you earn a fair price and also minimizes the risk for the investor.

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Exit at Will, Don’t Be Thrown Out

At every stage of fundraising in your StartUp, you would have had to part with some of the stakes. When you have gone through multiple rounds of funding there will be a situation when you no longer hold majority stakes in the company. This can be a double-edged sword as on one hand, you have cashed part of your hard work while on the other you have to listen to diktats from others. It is in at this point that you have time to plan your exit such that you make the move with pride and profit rather than be unceremoniously shown the door.

Legacy Proposition

This may not directly earn you any monetary benefits but most entrepreneurs like to leave behind a good legacy. After all, you have built this company from scratch and seen it through the good and bad times. The new owners shouldn’t completely do away with your legacy but retain some of the core values you had developed over the years and the culture built around the company. However, this isn’t surely the most important factor when you want to monetize your investments as well as your efforts.

When you keep these things in mind you will surely be able to maximise your returns while exiting your StartUp.