As an Entrepreneur, what’s your ultimate goal? Why did you start in the first place? Did you write a Statement of Purpose before starting?
Nobody would have asked this if we were living in the started-from-a-garage days. Back then, the thought of starting up on your own in itself had been a legendary one. But now, it’s a different story. We have evolved and so has everything around us.
The age is now of virality more than of sensibility. Most of the people don’t have time to pause and understand things that they are doing day-in and day-out. But it is more important to pick up and stay attuned to the trend.
Money (Wealth creation), being your own boss, solving a problem or strong urge to build something remarkable. If your reason is similar or close to any of the above, read on.
The stage for meaningful exits
There is a sweet spot in the capital raising process in which startups that have raised $2M to $3M actually have significantly more lucrative exits than those that have raised $3M to $5M – Early Exits, Basil Peter
A lucrative exit is when you, the founder, maximize your personal financial returns and those for your seed investors. To understand more, consider the simplified comparison made by Bryce Roberts in Meaningful Exits for Founders: Between an exit for a seed-funded startup and the growth in valuation required once you have reached the Series D stage, the payout for the founder(s) remains the same. Even a 7x valuation increase for the startup nets the same wealth for the founders.
Not to mention, at this point, the seed stage – founder has the most control over her/his business and is the one who calls the shots.
So the best strategy here is to build, seed and exit (… and start again :)) to achieve the best outcome.
Large companies and Startups are acquiring (more frequently)
If you have been following the startup news, you’ve most probably come across frequent news items about startup acquisitions, not just by big companies but also by fast-growing startups. There is an ever increasing acquisition interest from industry incumbents and high-growth enterprises for young companies. No wonder they have millions of cash kept aside for M&A activities.
However, the trend that we are observing is of Growth & beyond-stage startups acquiring and acqui-hiring smaller early-stage startups.
According to Quickbooks data, 19% of startup leaders agree that competition is the greatest challenge when starting a business. And either to kill this competition or to complement their own offering these startups choose to invest in acquisitions of small-size transactions.
Acquisition as a classic exit path
When asked about their long-term goals, 50% of company leaders said that the most realistic scenarios are acquisition – Silicon Valley Bank
If it’s not about the control that you care, acquisition is a proven path for retaining your business model and philosophy behind building the company. For any underlying reason or for the sole purpose of deriving benefits, getting acquired is the way to find a new home for your vision, team and solution to keep running and address a larger market.
Timing is everything when it comes to Exits and it differs for every startup. Now as a founder, you obviously want to achieve the highest number possible, and a buyer wants to acquire at the lowest reasonable number possible. So when you reach that sweet spot, you and the acquirer get the best of what you both intended for through the transaction.
P. S. For the record and peace of mind for hustlers, we are not suggesting to build a startup just to sell it, but instead, to know when to exit.
Stay tuned for the next in line: ‘Preparing for an Exit’
Until next time!
Thinking about an Exit? Log on to startuplogin.com