The Importance of An Exit Strategy

Did you know that an Investable Entrepreneur must have an exit strategy? Investors want to invest in founders who are the total package, and that’s much more than just a great idea and a compelling vision. An essential part of a total package is the founder’s exit strategy.

What is an exit strategy?

An exit strategy is two things. In its purest form, it’s the plan an investable entrepreneur makes that roadmaps exactly how they will liquidate their position when they eventually sell their business.

Investors aren’t good Samaritans. They don’t invest in startups simply because they want their founders to succeed. Investors invest in startups because they want to be rewarded with the maximum return possible when their investment reaches its end, usually at between 10 to 100 x the amount of money they injected.

Sometimes exit strategies go overlooked, but that’s a big mistake for everyone involved.

From an investor’s point of view, a founder with a clear plan from the outset on how they’re going to build a valuable and scalable business, including what their exit strategy looks like, is already well on the way to proving they’re an investable entrepreneur. Investors aren’t just looking for founders who can build exitable businesses; they’re looking for founders with a clear plan for leaving it.

That clear plan is called an exit strategy.

The other benefits of an exit strategy

Having an exit strategy isn’t just one of the three fundamentals investors want to see in your financial projections. An exit strategy helps to define your business’s objectives. If you don’t know your objectives, there’s no way you’ll be able to plan an exit strategy. Hence, an exit strategy is also an excellent way to reassure an investor that you understand precisely what you’re setting out to achieve.

It’s true that exit strategies sometimes go overlooked, and founders have occasionally forged ahead with an investment without considering an exit strategy, but that’s a dangerous approach, which is becoming rarer and rarer in these increasingly risk-averse times.