EXIT STRATEGIES FOR TECHNOLOGY VENTURES

Initial Public Offering (IPO) or “going public” 

A process whereby a private company qualifies to sell its shares on a public stock exchange.

Investment horizon – Placing a limit on an investors involvement in the early-stage funding deal. 

Liquidity event – Enables investors to convert their shares into cash.

Three basic categories of exit strategies :

• Acquisition
• Merger
• Public Offering

Acquisition

Common strategic value drivers obtained by the acquiring company:

• Broader product lines
• Expanding the technology base
• Adding markets and distribution channels
• Increasing the customer base
• Creating economies of scale
• Extending internal skills

Mergers

• A transaction involving two (or more) companies in which only one company survives.
• Relative size of the ventures involved is equal.
• Decisions on control of the merged companies is part of the merger negotiations.
• An entrepreneur exiting a venture may earn out of the company over a period of time, depending on the size of the new company.
• Earn-out strategy – Used for ventures consistently generating strong positive cash flow.
• Merger strategies can be both defensive and offensive.
• A merger protects against market encroachment, product innovation, or an unwarranted takeover.
• It provides diversification as well as growth in market, technology, and financial and managerial strength.

Going Public

Technology entrepreneurs must carefully evaluate the advantages and disadvantages of going public.

Advantages :

• Obtain new equity capital on the best possible terms.
• Obtain value and transferability of the organization’s assets.
• Enhance the company’s ability to obtain future funds.

Disadvantages :

• Public exposure and potential loss of control.
• Loss of flexibility and increased administrative burdens.
• Significant amount of time is spent on addressing queries from shareholders, press, and financial analysts.
• Expenses involved in the IPO process.