Exit Strategy

Investors in private companies, such as venture capitalists, private equity firms and angel investors, usually cannot easily sell their shares. An exit strategy sets out how and when they expect to realize their returns.

Common exit routes include selling the company to another business, known as a trade sale; selling it to a private equity firm or other financial buyer; listing it on a stock exchange through an initial public offering; selling shares to another investor in a secondary sale; and, for smaller businesses, selling to management or employees, or passing the business to family members. If none of these succeed, the company may be wound up.

For example, a venture capital firm investing in a start-up might expect to exit within five to seven years, either through an acquisition by a larger technology company or a stock market listing.

Business owners also need exit strategies, for example when planning retirement. A clear exit plan can influence decisions about how the business is run, structured and prepared for sale. Market conditions strongly affect exits. When stock markets are weak or interest rates are high, exits may be delayed or achieved at lower valuations.