Startups and the Exit
Establishing a startup and getting rich through the financial 'exit' is a romantic story that remains persistently in the public eye. Again and again the media and also former founders report about the big success. The reality is often quite different, because the scaling of a start-up up to the exit means hard work and a lot of time – the price of liberty. The real entrepreneurial spirit, however, accepts this. Although many of them don't want to admit it, most of these thoroughbred entrepreneurs can hardly wait to leave their current start-up and build a new and better one with the next big idea. The exit is therefore the desired goal - with a profit, of course. In order to achieve this, the exit should be well thought out. Questions about how and when arise and must be clarified together with partners, employees and investors, so that everyone benefits in the end. The different exit strategies should therefore be weighed carefully. These are merger and acquisition, IPO, sale, non-sale and liquidation.
Merger and Acquisition
A merger describes a combination with a similar and in principle larger company. This type of exit is often sought by those business partners who are looking for complementary opportunities in and for the market. The takeover of a smaller startup is profitable here because it saves development steps in terms of ideas and products, which saves time and money. Such takeovers also control the competition on the market. For the startup itself, such an exit can also mean, in addition to the actual profit, knowing that one's own vision is in good hands, whereby path and end remain open and verbal agreements are no firm guarantee for the original implementation.
Here, the company is trying to go public and sell a substantial portion of its shares to institutional and non-institutional investors. Investments that have already been taken should generate a corresponding return. Large companies are the ones venture capital (VC) investors dream of, as they often provide large sums of capital for all parties involved (founders, employees and investors).
The most important exit strategy for startups is to sell the company to a larger one. The same applies to investors. The buyer takes over the startup for cash or shares. In the case of the last remuneration, key persons and employees of the start-up often remain in the company for a longer period of time in order to be able to pay out and transfer their shares.
This exit strategy involves an exit "in mind" rather than in the traditional sense and is associated with a personal withdrawal of the management. The focus here is on the advantages of a profitable business, which is personally exploited in the best possible way. To this end, repeatable processes should first be created and good employees hired, who slowly detach management from everyday responsibility. In this case, startups essentially replace the strategy of hard growth with that of cost reduction.
Although not the fabulous ending that most entrepreneurs (and even investors) have in mind, an overly realistic option. For this type of exit from a startup, this means closing the doors of the business behind you and dissolving the assets. The need for liquidation can arise from a severe market crash, a major life event or a company that has reached its maximum and is no longer profitable. However, any income and opportunity costs already received should be weighed against each other.
The right time for the exit
The question of the right moment is often asked at conferences and private meetings between investors and startups and raises a number of other questions. How should the exit take place? When is the right time to look for partners or buyers? When should I as an investor start looking for a return on my investment? There is no universal answer to all these questions. Basically, it is important for every startup, as well as its investors, to make as much money as possible for their own vision. Partners and buyers want to invest as little as possible. Usually you find yourself somewhere in the middle. In order to maximize their selling price, startups should look for an exit when their growth rates are high rather than profitable. Proactive business measures and an awareness of the opportunities can also help a startup maximize its acquisition potential.
The preparation of one's own exit – the preferred final goal of all thoroughbred entrepreneurs – requires the fine tuning of all framework parameters as well as the consideration of the actors involved in the startup in order to achieve the best possible conclusion and to meet all needs. Only if the fine tuning is right, the outcome can mean a new beginning and gives new hope for a general added value, which new ideas bring into the world and which, apart from the striving for success, constitutes the real essence of the startup scene.
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