Exit Policy for Investors

Everyone is interested in finding ways to increase their equity and when they find one, they will ask themselves few questions such as: the way they will get their money back at the end of the deal and how they are going to use the money they got, after exiting the deal and many more. All those questions are complicated to answer and to explain. But you should note that they are very important and if you neglect them, you can end up with nothing and most importantly, you will lose all your investment. 

The exit policy is not just the worth of a company in near future

The exit policy is much more than that. Companies should understand the investor’s needs and what they want to see and get, when they exit the plan. This should be the essential part in a company’s presentation. For example, if you have an investor who is looking for a 3 to 4 year exit plan then do not present him with a 6 year exit plan. 

 

There are things that are needed to be looked at, when planning an exit strategy. For example, things like who your potential suitors are, types of professional assistance you need to set the marketing strategy so that you can achieve the desired valuation, how necessary an IPO is in your business etc. need to be considered. 

 

If the company can put a considerable amount of thought into the exit strategy it plans for an investor, then it will give an advantage to consider the same company, when the investor plans his next investment. 

 

Factor that affects the exit strategy

Another factor that affects the exit strategy is the issue of valuation. Playing it conservative is must and you should make sure the growth and the value of an enterprise are within the range of possibility. However, company should be careful, when playing conservative. Being too conservative will turn off the investor. No company wants to see a flat line with losses ahead and if you think that is what is going to happen then shove the plan and begin thinking on a new one. Taking away the money of your investors, when you are failing, will affect your company’s reputation.

Providing a potential investor with many examples of other company’s achievements in your industry is important. The investor can expect 3 to 10 times the investment in 3 to 5 years depending on the following factors: growth of your company and type of investor. If a company managed to attract the investor’s interest, who liked the exit strategy then the company should be careful to protect the ability to enjoy the success in future. 

 

Legal and practical perspectives regarding protection:

In a legal perspective experienced lawyer is necessary to protect interests and in practical perspective, it is important to understand the true meaning of the term sheets or discussions you have. A company should always ensure their investors about the return of capital.

You need to understand what a potential investor wants and what he looks for. You should also make sure that they can negatively impact the balance of the company, when they exit.