Venture Capital For Dummies

Chapter 8

Providing an Exit Strategy

In This Chapter

Beginning with the end in mind

Realizing 50 percent of the company’s value at the exit

Choosing between acquisition or IPO

The second habit Steven Covey outlines in Seven Habits of Highly Successful People is to begin with the end in mind. This may be the second habit of highly successful people, but it should be the first habit of highly successful venture firms. And for VC firms — and the entrepreneurs trying to attract them — the “end” is the exit.

Exits are important to investors because, without an exit, they don’t make money. Sure, you’ve got a plan that will generate a lot of profit, but that profit doesn’t get to the investor. Unless you have a revenue-sharing or dividend agreement, the money that your company makes as it grows stays with the company. The VC is working hard to help you, making connections, attending board meetings, and risking his portfolio and reputation on your success, but he doesn’t make a penny until the exit.

This chapter is all about the end — the time when you no longer own your start-up anymore. A founder’s exit is a mixed blessing because you often walk away with a decent payout, and you are ...