Exit Strategies

Question 1

What are the possible exit options?

Answer 1

Full or Partial
Trade Sale - Buy and build
Sale to Entrepreneur - Re-financing by management
Sale to other funds - Secondary acquisition
Sale at IPO
Sale post IPO

although most frequently used ones are
Trade Sales and IPO’s
Venture Capital backed companies are a major source of company Flotation
Choice will be influenced by readiness of company for market and by market conditions

Question 2

What are The Double moral hazard

Answer 2

Entrepreneurs are agents investing VC money
VCs are agents supplying advisory services
VCs are also agents of investors
Entrepreneurs may reduce effort or add risk if not bound by contracts
VCs may reduce

Question 3

when to exit ie

The Importance of Market conditions

Answer 3

The choice of How and When to exit is going to be strongly influenced by Market conditions
The IPO option depends on investor sentiment
Trade Sales also depend on sectorial conditions and firm confidence
Delayed exit will drive down rates of return