Do you know the one thing all investors have in common? They want to see what your exit strategy is. What that means is that they want to know how you will pay them back on their investment into your business. That want to be able to see how you will go from point A to Point B.
You may not know the answer right now – and after all, the future is hard to predict. But any savvy investor will want to make sure that your goals are aligned, and that you are both looking forward to a “liquidity event,” where you will both reap significant rewards.
As you create your exit strategy, you may be able to take some tips from other firms that are similar to yours who have been successful with their own liquidity events through mergers, public offerings, or acquisitions. You should reference these companies in your business plans complete with descriptions. Highlight the reasons for the success of these companies and show how they were able to realize successful exits. Was it their marketing strategy that was responsible for their success, or was it because of some kind of technological advantage that they had? Regardless of the reason, be sure to make note of it in your business plan.
It is also critical to your success that you mention the comparable value of the different firms at the point of exit. Do everything you can to explain what drove the valuation. Was that in relation to the company’s earnings, or did it have more to do with the number of customers they were able to get and retain? Use these numbers to benchmark what you are planning for your own exit strategy.
Along with that, you should also list the firms that may be able to benefit from acquiring your company if you are aiming in that direction and explain why you think it would be a good fit. In addition, if you prefer to aim for IPO, this should also be explained in the milestones of your exit plans.
IPOs and acquisitions are generally the styles of exit strategies that are spelled out in business plans. One must also know that IPOs are not showing up as often today as they did just a few years ago. It bears to mention that no one can predict if that will change any time in the future. Reasonable investors will not demand an inordinate amount of detail when spelling out your exit strategy though. However, they will still want to make sure that you have some form of strategy in mind. They also want to know that you desire to grow the overall value of the company you are building.
Typically, investors cash-out only at the point where the company has reached the point of exit whether that is through acquisition or IPO. That makes it more important that you provide documentation about the strategy you have for exiting your company as part of your business plan. Just keep in mind that your exit strategy is just one part of your overall plan and you have to get this right if they are going to approve funding.
If you’re looking for business plan help, then consider using a simple business plan template, so you finish your plan in hours, not days, weeks or months.
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