In the Access to Funding & Finance team we get to see a fair few investment propositions. One of the main areas that is commonly missed out, or ‘plonked’ in at the last minute, is the exit strategy. This will be of importance to the investor audience you are presenting to and so worth taking the time to consider what the most likely scenario will be. Here are a few common mistakes we encounter…
1) “We will exit via trade sale or IPO in 3-5 years time” This rings alarm bells for “we do not know” as this outlines the most basic of variables. Provide a defined plan or state that this is something you are working on.
2) “We will be acquired from one of the giants such as Google, Amazon or Facebook”This might be the case, but how are you going to make it happen. What is more believable is to state how you align with these organisations and what connections you already have with them.
3) “We will exit via trade sale in 10 years” This is too far away. Typically investors are looking for an exit around 3-5 years. Less than 3 years could affect their tax situation for personal investors and many funds have a finite investment period e.g. 10 years. An exit would therefore be expected in 3-5 years, knowing that things tend to slip.
Your investor will be looking to sell their shares in your business to generate a return on investment, resulting in wealth creation. You need to provide a scenario that helps investors understand the options that your company might have in the future. This is different than the company being profitable. It is about how they can make a return on their money.
Put forward a scenario that you can be confident in today based on sound assumptions. And guess what, tomorrow those assumptions might change, but you have thought about them and can defend your initial assumptions. Be confident and remain flexible.