Early exits are named as such because the exit constitutes an interruption of the regular venture path. There are several paths to an early exit, some organized, some happen by coincidence.
➡️ For startups, it is important to have a clear focus on the path forward and, based on the technology and product it is developing, to understand the startup’s value path.
➡️ For most startups, an early exit means a significant cut on the exit value: the exit comes earlier, but the value is (much) lower.
➡️ For VCs, this is typically not an attractive path as their ROI will be low. For a startup that has already found customer traction (and hence is lower risk), VCs usually set a high target acquisition price (in case the startup is approached by a potential acquirer) to ensure they achieve at a decent ROI for their fund.
➡️ Depending on the strategic value of the startup’s technology and product(s), the acquirer might decide the price is worth the payload and will issue a non-binding offer (NBO) and execute the due diligence followed by the acquisition of the startup.
➡️ For some startups, an early exit can be planned. This is usually driven by the type of technology and product the startup is developing. Important as part of the planning is to ensure that the potential acquirer has the ability to determine the value of the startup based on clear KPIs. This will require the startup to execute a different strategy as compared to the regular venture path. For instance, rather than focus on full technology and product roadmap development, the startup might prefer to focus on its MVP and relevant piloting with key (lighthouse) customers.
➡️ Another path towards an early exit is the choice of CVCs in combination with VCs. Of course, the choice of CVCs is key in this strategy as it is relevant to find a CVC where the fit for technology and product is strategic and future integration will bring significant benefits (e.g., use of the corporate’s sales organization).
➡️ Bottom line: if you plan for an early exit, it is important to determine what your choices are and where the split in the road will be most effective: where to continue the regular venture point or where to take the right turn and go for an early exit.
Many founders who receive a Non-Binding Offer consider it a big achievement. Especially after months or years of development, a potential acquirer looks like a sign that hard work is bearing fruit. But being excited sometimes may lead founders to make mistakes.
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