20
Sep
2021

How To Determine The Right Exit Strategy For Your Startup

No startup founder starts with the intention of selling their company. However, many startups end up being sold for a profit because of an exit strategy gone wrong. The startup founders are left wondering if they could have avoided it or how they can make more money on the sale. This is why you should determine your startup’s exit strategy before you start!

Brainstorm a list of the reasons why you are considering an exit strategy

First off, you need to brainstorm a list of reasons why you are considering an exit strategy in order to determine the right exit strategy for a startup.  For example, let’s say that one reason is that you want your startup to be acquired by another business and become part of its team rather than going it alone. This might seem like a good idea at first but when we take a closer look, this may not actually benefit either party involved in this situation. 

Exit Strategy

Instead, what if the startup was acquired by a competitor? Then they would have access to all company information which could lead them down whatever path they choose with said knowledge while also taking away any future earnings derived from the product or service offered within your startup. Or perhaps there wouldn’t even be any benefits gained from the startup being acquired by a competitor. 

Hire legal help to make your startup grow better

Legal firms that partner up with startups are able to provide startup founders with legal assistance that is specifically tailored for their business. You should hire an experienced startup lawyer who can help them simplify exiting so they could sell it fast without hiccups and issues in the future. A startup lawyer might even be able to negotiate a higher sale price because of his experience, allowing your startup to get a higher return.

Make sure that your company is in a position to be sold 

You have to ensure that your startup can be sold. If it is not in a position to be sold, then the exit strategy will have failed. You need to make sure that your startup has established itself as an authority or leader in its market niche before seeking out investors for funding. Don’t get discouraged if it takes years for this process to happen-it’s just part of growing and building up your startup!

Here’s a list of factors to help you determine whether your company is in a position to be sold:

  • The startup has a strong product or service
  • It is well known in its niche market
  • There are several subsidiary products to supplement the startup’s revenue stream
  • It has been at least two years since being started and three years from completion of development
  • The startup’s management team knows its market well and the startup continues to grow every year
  • There are existing customers who already purchase from your startup on a regular basis

Determine whether or not your business has any key assets, such as patents, trademarks, and copyrights

Key assets are one of the main characteristics that startup companies look for when determining what type of exit strategy to pursue. If you happen to be fortunate |enough to have any key assets, then you can make an easier exiting strategy that will help bring in maximum returns on your investment. 

Even if a startup doesn’t have many or any key assets, the startup should still determine if it has products or services that can be sold to a larger company. Unlike key assets, startup companies usually have an easier time selling their products and services because the startup business is in its early developmental stages, which makes it more attractive for a buyer to pick up.

Research how much money does your business have in its bank account 

Researching how much money the business has in its bank account will allow you to determine what your exit strategy should be. You want to make sure that when it comes time for an investor or buyer to take over, there is a big enough cushion so no one gets hurt financially.

A startup needs at least six months’ worth of runway and you should make sure that there is enough cash to pay all creditors. Also, if it has a loan, make sure that it can be paid off before turning over control of the company. 

Figure out who are potential buyers for your company’s products or services 

You need to figure out who are potential buyers for your startup’s products or services. This will determine the right exit strategy to pursue in order to sell your company. If you sell to a competitor, this will probably mean that your startup’s technology and trade secrets remain intact. Alternatively, if it’s acquired by another startup, this will help you expand your service offering and customer base. 

potential buyers

An exit strategy is very important and there’s a lot to figure out. First of all, you should look into the reasons, and after that hire legal help to speed the process up. Make sure your company is in a position to be sold, and figure out who would buy it. Make sure to research if the startup has key assets and enough money in the bank account for this process. Good luck!

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