What is the significance of start exits
1. term: Exit describes the exit of an investor from a company, i.e. the sale of the investment.
2. features: The exit in the venture capital (VC) area is of particular importance, as this corresponds to the realization of profit. The exit strategy is usually determined at the beginning of the VC relationship. For this purpose, an exit due diligence is carried out in order to sound out the various options and their conditions. The exit strategy chosen is often set out in the VC contract.
3. to shape: The different forms of an exit are called exit channels.
a) Trade sale: (1) Term: The stake is sold to another company, usually to a strategic investor. For many small companies, this is the only way to sell to a third party if the conditions for an IPO have not yet been met. (2) From the point of view of the VC company: Strategic investors are often prepared to pay a premium, e.g. due to synergy potential. However, there is also the risk that there will be too few bidders at an auction to carry it out in a controlled and efficient manner. Another advantage compared to going public is that the sale is not only easier and faster, but also more cost-effective. (3) From the perspective of the old entrepreneur or management: Here the trade sale often represents the risk of loss of independence and thus offers a high potential for conflict between the new owners and the old owners or management.
b) Secondary purchase: (1) Term: The shares are sold to another financial investor, usually to another VC company. (2) From the point of view of the VC company: The transaction can usually be carried out easily, quickly and inexpensively. However, the profits of trade sales cannot be achieved with secondary puchase. (3) From the entrepreneur's point of view: Similar to trade sale, the loss of independence is the greatest disadvantage.
c) Buy back: (1) Term: The stake is bought back by the company itself. (2) From the point of view of the VC company: The greatest advantage for the VC company arises here in the form of protection in the event of a crisis. The mandatory stipulation of the repurchase in the VC contract guarantees the fungibility of the participation for the VC company. In addition, the transaction can be carried out quickly and easily for both parties. The disadvantage is the waiver of a bid competition for the shares, so that the purchase price and thus the profit of the VC company are lower. (3) From the entrepreneur's point of view: In addition to the simple processing, this exit channel guarantees the entrepreneur full control over his company after the buyback. At the same time, however, the buyback represents a great effort for him due to the high expenditure of funds. The fixed put option further reduces the incentive of the VC company to actively work towards improving the company, as they now do not participate in an increase in value.
d) Management buyout (MBO): In contrast to the previous owners, the management buys the shares. The advantages and disadvantages are the same as those of buyback. When an external management team acquires the shares, it is called a management buy-in (buy-out financing).
e) Going public: (1) Term: The company is listed on the stock exchange. However, this is not an exit in the strict sense of the word, as it does not mean the sale of the shares, but rather represents a preparation and facilitation of the sale. Often, the shares cannot be sold in the course of the Initial Public Offering (IPO), as mostly a lock-up period is prescribed during which the units must continue to be held. (2) from the point of view of the VC company: The greatest advantage here is a mostly high valuation and high sales proceeds for the VC company. In addition, the sale of the shares can be staggered and medium-term participation in the further development of the company can be achieved. However, the lock-up period also has disadvantages. For example, the VC company can lose its high say in the process of transforming the company into a stock corporation, but without being able to withdraw from the investment. An additional disadvantage are the high costs associated with the IPO and the high planning and preparation effort. However, strong management support is likely, especially with trade sales as an alternative. (3) From the management's point of view: In addition to the possible high sales proceeds and the increased liquidity of own shares, the management still has a relatively high degree of freedom vis-à-vis the new owners due to the spread of the shares. In addition to the high IPO costs, the ongoing publication obligations and the high performance pressure from the market represent further disadvantages.
f) Receivership / liquidation: The company is liquidated and the liquidation proceeds are distributed. This is rarely a voluntary exit, but often corresponds to the failure of the company and a loss of the VC company. Due to the low liability and liquidation assets, this can often be equated with a total loss. One advantage, however, can be that the previous owners and management can withdraw from the company.
From the "Gabler Kompakt-Lexikon Entrepreneurship: Look up, understand, apply 2,000 terms". The Gabler compact encyclopedia company start-up offers over 2,000 current definitions of terms on the topics of start-up planning / process / management, business models / concepts / development as well as corporate finance and funding programs. Editor Professor Dr. Tobias Kollmann is a recognized expert for all questions relating to business start-ups and development. The target group of the lexicon are company founders, start-up consultants, venture capital companies, investment managers, business consultants as well as students and lecturers in economics at technical colleges and universities. Order now from amazon
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