Making Your Exit Strategy Intentional

Having a proper exit strategy is crucial for businesses of all sizes, and should be considered before starting, acquiring, or investing in a business. An exit strategy refers to how a business owner or investor will liquidate an asset once certain conditions have been met.

It is essential to have an adaptable strategy that accounts for unexpected situations and contingencies. There are several types of exit options to consider:

• Established businesses often consider mergers and acquisitions, while startups might look at initial public offerings or management buyouts.
• Another emerging exit strategy is selling a portion of the business, known as a “soft landing,” where a company might sell its intellectual property or product rather than the entire business.
• Succession planning is another important consideration. Succession planning of an exit strategy can help avoid potential issues when a business owner departs.
• For investors, the “power law” scenario is significant for exits. It’s best to view your full portfolio as a canvas knowing one investment might return the entire portfolio, while others may have soft landings or fail to progress.

Proper organization from the beginning is also crucial:

• From the start, surround yourself with advisors, investors, legal counsel, and industry experts who can help you achieve your exit goals. While it may feel like a higher upfront cost, consider the cost later of not having done it correctly.
• Consider how equity ownership will impact you down the road. Your governing documents and your cap table matters. For example, a messy cap table can deter future buyers and investors.

Your exit plan should be a living, breathing strategy. It will influence how you run your company and enable you to make intentional decisions and swiftly adapt under changing circumstances.

Our weekly newsletter is published to share updates and insights from part of our team of Private Equity and M&A legal talent. This edition is curated by Shaziah Singh .

Insights

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