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The Fast Company Executive Board is a private, fee-based network of influential leaders, experts, executives, and entrepreneurs who share their insights with our audience.

3 ways to design a successful startup exit strategy

If you are a startup founder and you haven’t already thought long and hard about your exit strategy, it’s not too late.

3 ways to design a successful startup exit strategy
[Source Photo: Sky Antonio/stock.adobe.com]
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I was lucky to have a successful exit for my startup Attentive.ly. After all, as far as we can tell, it’s the first tech startup with a Black female founder on board to be acquired by a NASDAQ-traded company. Given that only happened in 2016, I was certainly fortunate to make #BlackHistory.

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Since that happened, I’ve been passionate about helping others find exits for their startups. A successful exit is hard to pull off—after all, around 90% of startups fail. That means precious few startups have the experience of negotiating with a larger company that can take their dreams and innovation to the next level.

Here are a few recommendations to bear in mind as you navigate your startup’s trajectory through these challenging times.

LAUNCH YOUR STARTUP WITH AN EXIT STRATEGY IN MIND

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Ideally, as you were forming your business and creating that killer pitch deck, you were also thinking about the nature of your startup’s trajectory. Most startups have a five- to 10-year lifespan, and you should have some idea what your exit strategy might be when you begin to seek funding. If you receive funding in a seed round and are planning a Series A round, investors at that level are sure to ask about your exit strategy. They are potentially investing larger sums, and thus it’s more important to understand how and when they might get that ROI. Second, how you start your company has a real influence on how you land your company’s plane into a good exit. That brings me to my next tip.

RELATIONSHIPS MATTER

Building your startup with an exit strategy top of mind will directly impact how you pursue strategic partnerships, marketplaces, and technical integrations in your space. Relationships and reputation are a bigger deal in business than many entrepreneurial ingenues might realize. I wouldn’t have been able to start any of my companies without my relationships, and I wouldn’t have been able to keep them alive without them either.

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Big companies might seem imposing, but they are staffed with real human beings. It’s very common for an acquisition to come from a relationship that a startup has grown with a much larger partner over time. Therefore, it’s a great idea to ensure that your project integrates with the kind of companies that might make natural buyers someday. Reach out on LinkedIn or tweet at them. Seek meetings and placement on their partners’ pages—do whatever you can to get on their radar. Many big companies have even begun to host incubators and accelerators with the not-so-secret intent of encouraging innovation with their technology. In-house support programs for external startups help larger corporations cherry-pick promising tech that they can accelerate and ultimately incorporate into their own offerings.

UNDERSTAND WHY COMPANIES ACQUIRE OR IPO/SPAC

Only a tiny minority of companies have graduated from Series B or later rounds and have an initial public offering that allows anyone to invest in the company on public exchanges like the NASDAQ. While hundreds of startups go public every year (again, that represents a small fraction of companies in the U.S.), only about 20 companies founded by women have ever gone public. That’s an insane number given that women control 85% of consumer spending, which adds up to around $36 trillion. But the lack of women-led IPOs is not so shocking given that only 3% of venture funding of any kind goes to female startup founders.

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IPOs are legendary because they build wealth not only for the founders and their investors but also for employees. Conventional wisdom states that home prices go up in Silicon Valley after a big IPO because a large group of people suddenly have a bigger nest egg. Therefore, companies go public to make the people involved richer via wider investment from the public.

We are entering a new era as the pandemic changes shape. 2020 was actually a record year for startups going public, despite the lockdowns and new ways in which people worked. That’s in part due to the rise in special purpose acquisition companies, or SPACs. SPACs raise a lot of money from private investors to buy one or more companies, and then the SPAC does an IPO on a public exchange. It’s a new hip thing to do. For example, the genetic testing company 23AndMe is going public via a SPAC.

SPACs can reduce the cost and risk of going public. You get to skip a few steps, but you still have to follow the rules of public companies. Some investors are calling SPACs the new Series B. There’s a lot of hype and garbage out there, and the SEC might get involved to regulate it all. Yet I believe that SPACs are likely here to stay as a vehicle and tool for exit. It used to be extremely rare to get to IPO, but SPACs are opening the door for more companies to go public and reap the benefits. Depending on the nature of your business, especially if you are a steady, expanding, and high-growth B2C company, a SPAC might be a way to go.

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If you are a startup founder and you haven’t already thought long and hard about your exit strategy, it’s not too late. Now is the time to view your company’s trajectory through a new lens that can help you increase your chances of having your own success story. If you’re thinking about launching a new startup, there’s never been a better time to do so, and now you have some key tips to ensure your idea gets off to the best start on that hockey stick of growth.


Cheryl Contee is the Author of Mechanical Bull: How You Can Achieve Startup Success, CIO at The Impact Seat & Founder of DoBigThings.today