While exit strategy plays a vital role, it is often overlooked by businesses until circumstances force them to make major changes. Skipping the step of developing an exit strategy—intended to guide the overall business trajectory—can limit a company’s future growth potential. Therefore, proactively planning an exit strategy before that moment arrives is crucial to safeguarding the company’s future and ensuring the most effective business outcomes.
What Is an Exit Strategy?
An exit strategy is a structured approach aimed at selling or transferring ownership of a startup once it reaches a significant milestone or valuation.
This critical component of the business plan outlines how founders and investors can recover their capital and benefit from the risks they have taken. Incorporating considerations such as employee stock options or early equity planning ensures that key stakeholders’ interests are fully represented, facilitating a fair and balanced transition.
Common exit strategies include mergers and acquisitions (M&A), sale to a strategic buyer, or initial public offering (IPO). Each offers a clear roadmap for the future and helps safeguard the company’s financial security.
A well-considered exit strategy can significantly enhance a startup’s appeal to investors—who constantly seek clarity on potential returns. By planning for an exit, startups can better navigate dynamic business conditions, ensure sustainable growth, and execute transitions at the right moment. This approach also fosters a positive organizational culture and paves the way for a smoother transformation—benefiting not just owners and investors, but the entire organization.
Understanding the Exit Strategy
An exit strategy helps companies navigate multiple future scenarios while maintaining competitive advantage through various growth phases.
It acts as a strategic roadmap, enabling companies to progress methodically and systematically toward a successful exit while capitalizing on viable opportunities.
Exit planning is essential when raising venture capital or angel investment. Angel investors, in particular, require a clear vision of the startup’s exit potential to estimate the timeline and value of expected returns.
Successful Exit Cases
Startup failure rates are notoriously high—reaching up to 90%. Research by Startup Genome reveals startling statistics: only 1.5% of startups—approximately 15% of those still operating—achieve a successful exit valued at $50 million or more.
Interestingly, a 2023 report by CBInsights found that Europe led globally in exits, accounting for 38%, followed by the U.S. at 35%, while Asia recorded just 16%.
However, the total number of exits has declined post-pandemic, highlighting growing challenges in the market—especially for investors seeking liquidity. This reinforces the importance of developing a rational and flexible exit strategy, as it not only benefits entrepreneurs but also plays a key role in investor relations and a startup’s overall success.
Why Exit Strategy Matters for Startups
The primary goal of an exit strategy is to empower startups to design and implement growth plans accurately. A strategic approach equips businesses to identify, prepare for, and execute activities that maximize long-term value.
Key benefits of a thoughtful and well-crafted exit strategy include:
Clarity and Direction: A defined exit roadmap enables timely decision-making in evolving business environments.
Opportunity Planning: It allows startups to proactively plan and seize future growth opportunities.
Internal Alignment: Aligns departments under a unified growth vision, ensuring all initiatives serve common goals.
Business Health: Helps maintain strong and efficient operations.
Sustainable Growth: Provides a framework to execute consistent measures for long-term scalability in diverse situations.
When Should a Startup Prepare Its Exit Strategy?
Ideally, a startup should begin planning its exit strategy from inception. Having a clear plan is often viewed favorably by investors and can help attract early-stage capital.
An exit strategy should be embedded within the business plan, laying out a roadmap for how founders and investors can realize returns. Planning early doesn’t mean exiting early—it reflects strategic foresight and preparedness.
Since business conditions and company performance evolve over time, the strategy must remain flexible. Early planning leads to better decisions, aligns founder-investor interests, and provides a clear future vision.
Common Types of Exit Strategies
Mergers and Acquisitions (M&A)
In an M&A, two or more companies combine, or one company acquires another. It’s often ideal for startups seeking access to new markets, resources, or expertise. However, a CB Insights report notes that global startup M&A activity has declined by 8%.Initial Public Offering (IPO)
Going public through an IPO allows startups to raise capital and increase market presence. While IPO activity rose 24% globally according to a recent report, this strategy is complex and costly, and not suited for every startup.Family Succession
Transitioning a business to the next generation is ideal for founders wishing to keep the business within the family. The key is ensuring that successors are fully prepared to lead.Sale of Equity to a Third Party
A founder or shareholder sells part of their stake to another investor. This is a practical way to raise capital or cash out partially.Acquihire (Talent Acquisition)
A larger company acquires a startup primarily for its team and intellectual assets. This provides exit value and new opportunities for employees.Management Buyout (MBO)
In an MBO, the current management team buys the company from existing shareholders—gaining control and creating internal value.Liquidation or Bankruptcy
Liquidation occurs when a company sells off its assets and ceases operations—often as a last resort. Bankruptcy is a legal process in which a company declares insolvency and undergoes asset liquidation.
Choosing the Right Exit Strategy
The ideal exit route depends on multiple factors, such as industry, growth stage, and financial health. It’s essential for startups to carefully weigh all options before deciding on the most suitable approach.
Real-World Examples of Exit Strategies
Understanding diverse exit pathways can help startups gain perspective on practical implementation. The following cases illustrate how exits are tailored to individual business contexts and ambitions:
Atlassian Acquires Loom
Atlassian, a top Australian software firm, acquired Loom—a pioneer in async video messaging—for $975 million. The acquisition aligns with the rising demand for remote collaboration and strengthens Atlassian’s product suite.
Airbnb’s IPO
In December 2020, Airbnb launched its IPO amid global pandemic challenges. It aimed to raise $2.44 billion at an initial price of $68 per share. On launch day, shares soared to $165, closing at $144.71, giving the company a valuation above $100 billion.
Twitter Acquires Squad
In late 2020, Twitter acquired Squad, a screen-sharing app, to bolster its product and engineering teams. This acquihire included key leadership (CEO Esther Crawford, CTO Ethan Sutin) and reflected Twitter’s push into audio-social features—a rising trend during the pandemic.
Conclusion
An exit strategy is not just an endpoint—it’s a critical element of startup development. Thoughtful, flexible, and context-appropriate planning helps startups protect investor interests, ensure sustainable growth, and maximize long-term success in today’s ever-shifting business landscape.
Source: National Agency for Science and Technology Information and Statistics
