To exit or not to exit? This simple question is a very important one to ask yourself when you’re starting a new business.
It might seem like a long way off, and perhaps you shouldn’t be thinking about it right now. Let’s face it, you don’t have a crystal ball, and when you’re starting a new business you’re struggling to identify what’s going to happen in the next few months, let alone in the next five years.
But first, let me explain what I mean by “exit”. There’s a bad exit – which is when the business goes bust. And there’s a good exit – when you either sell the business to another company, particularly one larger than your own, or perhaps you do an IPO, so you sell the company shares to the general public. More likely though, an exit is going to be a trade sale. In around 80% of cases this is what will happen.
Investment
The way you respond to the question “to exit or not to exit?” will help you decide which type of investment you should be going for to help your business grow. If you answer: “No, an exit is definitely not for me. I want to keep my company and grow it over time. I'd like to turn it into a wonderful lifestyle business – and maybe even pass it down to future generations in my family", then seeking investors is not going to be for you. However, investment from family and friends, reward crowdfunding, or debt-funding from a mix of small loans, could be suitable.
But investors? They love exits. Why do they love exits? Because that’s the only way they’re going to get their investment back with a healthy return. Many investors are looking for ten times their money back in about five years’ time. And due to the nature of the risk of small angel investments, this is the best chance they stand of making money from their investment portfolio.
Dividends
And, by the way, investors are not interested in dividends. Why? Because there’s no way they’re going to make a return on their investment after many years of you deferring profit, or re-investing profit – and when you finally issue the profit, it’s pretty small. That will never compensate them for investing at the highest level of risk.
So, think about it. Businesses grow up like children. At the outset, they need a lot of attention and careful nurturing. Then, as they grow, they start to become more independent, and eventually they’ll (usually) leave home. Ask yourself: do you want to hold onto your business for the rest of your life? Perhaps you do, and there’s nothing wrong with that. But perhaps you think it’s a good idea that, one day in the future, you’d like to release your company to other possibilities.
And so, if your answer to the question “to exit or not to exit” is “yes – I’d eventually like to sell my business”, then angel investors, equity crowdfunding and venture capital are most likely for you.
But first, let me explain what I mean by “exit”. There’s a bad exit – which is when the business goes bust. And there’s a good exit – when you either sell the business to another company, particularly one larger than your own, or perhaps you do an IPO, so you sell the company shares to the general public. More likely though, an exit is going to be a trade sale. In around 80% of cases this is what will happen.
Investment
The way you respond to the question “to exit or not to exit?” will help you decide which type of investment you should be going for to help your business grow. If you answer: “No, an exit is definitely not for me. I want to keep my company and grow it over time. I'd like to turn it into a wonderful lifestyle business – and maybe even pass it down to future generations in my family", then seeking investors is not going to be for you. However, investment from family and friends, reward crowdfunding, or debt-funding from a mix of small loans, could be suitable.
But investors? They love exits. Why do they love exits? Because that’s the only way they’re going to get their investment back with a healthy return. Many investors are looking for ten times their money back in about five years’ time. And due to the nature of the risk of small angel investments, this is the best chance they stand of making money from their investment portfolio.
Dividends
And, by the way, investors are not interested in dividends. Why? Because there’s no way they’re going to make a return on their investment after many years of you deferring profit, or re-investing profit – and when you finally issue the profit, it’s pretty small. That will never compensate them for investing at the highest level of risk.
So, think about it. Businesses grow up like children. At the outset, they need a lot of attention and careful nurturing. Then, as they grow, they start to become more independent, and eventually they’ll (usually) leave home. Ask yourself: do you want to hold onto your business for the rest of your life? Perhaps you do, and there’s nothing wrong with that. But perhaps you think it’s a good idea that, one day in the future, you’d like to release your company to other possibilities.
And so, if your answer to the question “to exit or not to exit” is “yes – I’d eventually like to sell my business”, then angel investors, equity crowdfunding and venture capital are most likely for you.
.Find out the best ways to raise investment for your business at my next event How to Attract the Right Investors on Thursday, 19th April, 2pm-6pm, at the British Library's Business & IP Centre, with guest speaker and Business Angel Colin Coghlan. Other dates are available. Follow me on LinkedIn, Twitter or Facebook for special offers and discounts.
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