Exiting

The initial years of cooperation with an investee firm focus on increasing efficiencies, reaching operational milestones, and meeting financial forecasts. At some point in the deal (normally between years two-four), venture capitalists begin to shift their discussions with management and other shareholders away from issues related to the business and toward those related to the exit and its timing. Other shareholders generally place less importance on this issue than venture capitalists, in spite of the fact that many entrepreneurs actually see themselves going public. If an investee firm has been performing well according to its business plan, achieved considerable market share and brand awareness, developed a strong customer base, and maintained a strong future outlook, venture capitalists will focus their attention on the most profitable mode of exit for the business. In these circumstances, the investee firm is likely to have already lured interested buyers or been approached by investment bankers promising a successful initial public offering (IPO). If the firm’s development has not proceeded according to plan, the spectrum of profitable exit choices diminishes significantly. In the most critical situations, the firm may be liquidated and venture capitalists may face the prospect of writing-off their investment to zero.