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New Literacy Technology Consultants

Exit Strategy

/ 3 min read

startup, business-plan-series, writing, guides

What to Include

The Exit Strategy section outlines how you envision your investors will eventually realize a return on their investment. Investors want to know that there is a clear plan for how they will see a return, and understanding the potential for an exit is critical.

Core Elements:

  • Types of Exit Options:

    • Acquisition: If a larger company might acquire your business.
    • Initial Public Offering (IPO): Going public on a stock exchange if the company reaches that scale.
    • Secondary Sale: The sale of shares to other investors, typically in a private sale.
    • Merger: The company could merge with another to create synergies.
    • Liquidation: In the case of a wind-down, liquidation of assets may be an exit.

  • Exit Timeline:

    • Specify an expected timeline for the exit (e.g., 5-7 years).

  • Valuation at Exit:

    • Provide an estimated valuation at the time of exit. This is usually based on market multiples for comparable companies or an expected revenue growth trajectory.

  • Target Acquirers or Market Trends:

    • List potential acquirers—companies or industries that would benefit from acquiring your business.
    • Include any relevant trends or industry consolidations that might make an acquisition more likely.

  • Exit Preparation:

    • Show investors that you are thinking ahead, e.g., preparing for due diligence, building up key metrics that will attract acquirers, or growing customer base and revenue.

Where to Source the Information

  • Industry Data: Research potential acquirers within your sector or industries that align with your product or service.
  • Market Reports: These will give you insights into the expected size of potential exits for businesses in your field.
  • Comparable Companies: Look at companies of similar size and stage that have successfully exited via acquisition or IPO.
  • Internal Projections: If you’ve already talked with potential acquirers or investors, they may have given insights into realistic exit options.

How to Analyze

  • Market Trends: Evaluate trends within your market—if acquisitions are happening at a high rate in your space, this will strengthen your case for a likely acquisition exit.
  • Valuation Models: Use revenue or EBITDA multiples to estimate potential valuations for an exit. Research comparable companies and recent exits to benchmark this.
  • Investment Horizon: Consider how long your investors are willing to wait for a return on investment—do they expect something in 3, 5, or 7 years?

Format and Structure

  • Exit Options Overview: Present a narrative about the potential exit strategies for your business.
  • Timeline: Include a timeline for potential exit events and when you expect the company to be ready for such exits.
  • Acquirer List: If applicable, create a list of target acquirers or strategic players in your space.
  • Financial Projection at Exit: Provide a rough valuation estimate based on projected revenue or multiples.

This section should clearly show investors that you have thought through how and when they can expect a return on their investment. A realistic and well-thought-out exit strategy helps build trust with potential investors.