What’s your Exit Strategy, Sonny?

(from the yeahfi.com archives) This is a question I’ve been asked more and more often as I’m looking for Venture Capital funding. And it’s a question I’ve naively misunderstood.

Google ‘exit strategy’ and see what comes up. George W. Bush didn’t have an exit strategy for invading Iraq. There was no exit strategy for the US involvement in Vietnam. This makes it look as if you might only need an exit strategy if you have a bad idea in the first place.

However, VCs aren’t really that interested in long-term dividends. They wish to invest money, see it grow in the shortest timeframe possible, and then sell, typically within 3 to 7 years. With the money they make on the sale, they invest in more companies and repeat the process.

Obviously, I feel at odds here with potential investors. I’m thinking all day about getting ‘into’ business, new markets etc. The budding entrepreneur has very little time to think about getting out while working his butt off just trying to get in.

Essentially, there are 2 common exit options: Aquisition or IPO.Recently, Skype was sold to eBay for $4.1 billionAlthough I’d gladly accept such an offer, I wouldn’t plan any business from the ground up with a ‘big sale’ in mind.

So that leaves us with the other great option: the IPO. Very exciting, but is it really necessary to go IPO? What are the plans of the guys at 37Signals (one of my favorite ‘model’ companies)? I somehow don’t imagine them in the IPO world with their no-nonsense ‘less is more’ approach.

Rick Segal suggests that a startup should never have ‘build to flip’ as a cornerstone of its business plan. See his excellent post: Build to Flip = Build to Fail

My favourite quote: “I point this simple math out because you can dig into your passion, make it amazingly great, and knock one completely out of the park without worrying about a flip, being crushed or ripped off. Keep it personal, grow the business, and let the big guys come knocking on your door.”

I’ll be waiting for your call, Mr Omidyar!

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