We need to talk about exits

February 3, 2022

As a founder, you should focus on growth and not worry about getting acquired or going public.

Execution is everything, and if you focus on the right things, the financial rewards will follow. Taking your eye off the ball and worrying about how you’re going to get rich is a distraction. Investors understand this and want you to put it out of your mind and get on with building a great company.

The problem is that it rarely works that way, and it is super important to know that all the people in your boat have the same destination in mind.

Not talking about exits is like jumping in a taxi and saying “drive”.

There is a big difference between being obsessed with returns and having a clear strategy for achieving them.

Misunderstandings about exits and returns can be fatal for founders and investors. Financial returns come in many forms, but most founders and most investors are seeking a particular kind. Profit is awesome, and often gets a bad rap in startup/venture land (for good & bad reasons) but isn’t generally the source of venture-style returns. Profits and dividends are one kind of financial return, so is getting acquired or going public, but they are very different results and confusion about which are considered good is critical.

If you don’t talk about exits with your key stakeholders (co-founders, investors) then it can be the source of serious problems down the track.

Alignment of return expectations is a must and can’t wait.

It is true, execution is everything, and focus brings execution, but you also have to know the why and where.

Getting alignment on exit and return expectations is not the same thing as lacking focus or being obsessed about the end result. As you scale and grow, you can’t avoid the impact that returns expectations will have on how decisions are made, especially around fundraising. As you bring on more partners (co-founders, investors) the gap can widen and misaligned expectations can crop up at the worst possible time

To ensure proper alignment, and not allow the subject to be an issue that diverts attention, there are things you should do:

Be on the same page as your co-founders. Startup life is your entire life and all-consuming. Agreeing why you’re in it and what it needs to deliver to your lives and loved ones is vital to smooth growth and scaling.

Be sure you understand investor expectations. Most investors have to deliver returns and often impact as well. A clear understanding of fund lifecycle and return horizons is important from the outset.

Plan a strategic exit. Focussing on building a great business is key. But sector-specific startups are also far more likely to be acquired than go public. Understanding the universe of acquirers and where their gaps are can greatly improve the chances of a strategic exit.

Focus and execution are absolutely needed to drive success, but a lack of alignment on how you get rewarded can lead to big problems down the road.

There is nothing wrong with having clear goals and a strategy for achieving a life-changing exit.

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