Glossary - Exit Strategy
An exit strategy is a plan for how an investor or business owner will liquidate their stake in a business, ultimately realizing their investment's profit or loss. This strategy is considered at the outset of the investment, outlining how an investor can exit the business to achieve the highest possible return.
Also known as
- Exit Plan
- Liquidity Event
Use cases examples
- Venture Capital Term Sheet: The term sheet outlines potential exit strategies, including IPO, acquisition by a larger company, or sale to a private equity firm.
- Shareholder Agreement: The shareholder agreement specifies the conditions under which shareholders can sell their shares, including tag-along and drag-along rights that facilitate exit strategies.
Considerations for investors
- Evaluating the feasibility and timeline of different exit strategies based on market conditions and the specific sector of the investment.
- Assessing the legal and financial implications of each exit strategy, including tax consequences and potential returns.
Considerations for founders
- Understanding the preferred exit strategies of investors and aligning them with personal and business goals.
- Building a business that remains attractive to potential acquirers or is eligible for a public offering.
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