The Financial Exit for a startup or new revenue stream is when the investors, co-founders, and any other equity owners receive cash or stock in an acquiring entity for their investment in the business.
Types of Financial Exits
- Acquisition by a corporation or other investor. This is the most common form of Financial Exit for hi-tech startups
- IPO (Initial Public Offering) on a stock exchange such as the NASDAQ in the US, or on another stock exchange
- Dividends. In this case the company pays out cash dividends over time to its equity owners. Most “traditional” angel and venture capital investors will refuse to accept this type of Financial Exit as they are looking for a financial payout, not a revenue stream
- Shutting down the business; a disaster from an investor’s or Founder’s perspective
- A restructuring of the equity. This is usually caused by non-performance and investors losing faith; combined with new investors who believe they can build something good out of a mess. A White Paper on this process is included in the Publications section.
Similar Expectations Are Very Important
It is important for the startup/new venture CEO to ensure that the Board of Directors, investors and other equity owners have similar expectations for:
- The type of Financial Exit
- The approximate timing of the anticipated Financial Exit
- The approximate size ($) of the Financial Exit
Good communication is vital to establishing and maintaining similar expectations.