One of the most important parts of owning a business is having a proper exit strategy. It’s a vital roadmap that will ensure a smooth and profitable transition when a founder decides it’s time to leave or sell their business.
I recently had the pleasure of speaking with Nixon Peabody counsel and Women in Dealmaking member Shaziah Singh, and VenturX Capital Principal Sydney Wong, to discuss the process of forming an exit strategy and why it’s so important to consider your exit—sometimes even before starting or acquiring a business.
Our discussion underscored the importance of having a well-thought-out exit strategy from the very beginning. Some of the items we touched on include the following.
Understanding Exit Strategies
An exit strategy is a conscious plan to dispose of an investment in a business venture or financial asset. Shaziah emphasized that exit strategies are essential for every type of business and are not one-size-fits-all.
“Business owners of all sizes, both small and large, need to create and maintain plans to control what happens to their business when they want to exit.” — Shaziah Singh
There are many different types of exit strategies, including mergers and acquisitions (M&A), initial public offerings (IPOs), buyouts, and even—in worst-case scenarios—liquidation or bankruptcy.
Shaziah highlighted M&A as a typical exit strategy for established businesses, while startups might be more likely to consider IPOs or buyouts. She also mentioned the concept of a "soft landing," where a company might exit by selling its intellectual property or product rather than the entire business. Sydney noted that current market conditions heavily influence the exit strategy that businesses decide are the best for them.
“Right now, because of the interest rates, there aren't as many IPOs as there are other types of exits, such as M&A.” — Sydney Wong
The Importance of Early Planning
Both Sydney and Shaziah underscored the necessity of early planning for exit strategies. Shaziah noted that it’s important to bring your legal counsel into the process. Sydney added that understanding market needs and customer demand is crucial for building a business that is “exitable.” She also emphasized the need for alignment between founders and investors.
Common Exit Strategy Pitfalls and Mistakes
Our discussion also covered common pitfalls that business owners should avoid. Shaziah highlighted the dangers ofa lack of planning, which can lead to rushed decisions and missed opportunities. Sydney shared a personal anecdote about the challenges of dealing with a messy cap table, and advised founders to be cautious about giving away equity.
“Don’t sign away things unless you’ve done a ton of research as to ‘Is this correct?’” — Sydney Wong
Thank you so much, Shaziah and Sydney, for joining me for this insightful discussion about navigating strategic exits.