When Does a Founder Start to Think About An Exit?

Feb 13, 20232 min read

A person signing a contract — A founder should think about exiting their start up as early as possible which enables a greater consideration of opportunities and risks.

Exiting a startup can be challenging for a founder who has poured their heart, soul, money and sacrificed a corporate career for their vision to be realised. However, it is an important aspect that a founder must plan and consider much earlier on in their journey than they might think.

Here are some preliminary thoughts on some of the essential things a founder should consider, how early they should start planning and what risks they need to consider when planning an exit.

Key things to consider:

Timing: The timing of an exit is critical, as it can significantly impact the business's value. A founder must consider factors such as market conditions, company performance, and the state of the economy when deciding when to exit.
Type of exit: There are several ways to exit a business, including an initial public offering (IPO), a merger or acquisition, or a management buyout. The founder must determine the type of exit best for their business and personal goals.
Valuation: The valuation of a business is a critical factor in any exit, as it will determine how much the founder will receive in return for their ownership stake. The founder must work with an experienced financial advisor to determine a fair valuation for their business.
Negotiating skills: Negotiating effectively is essential when exiting a business. The founder must be prepared to negotiate with potential buyers and be able to effectively communicate the value of their business.

When to start planning:

A founder should start thinking about and planning their exit as early as possible, ideally from the moment they start their business. This gives them time to put the necessary preparations and make informed decisions that will maximise the value of their business when the time comes to exit. It also means if an opportunity to exit arrives before expected, they can make better and more informed decisions.

Risks

Exiting does not come without risks, so I thought it essential to flag a few of the many dangers to stimulate some thinking for Founders.

Market conditions: Market conditions can significantly impact the value of a business, and a founder needs to be aware of these factors when planning an exit.
Competition: The industry's level of competition can also impact a business's value. It is essential for a founder to be aware of their competition and how it may affect their exit.
Legal issues: There are numerous legal issues that a founder must consider when planning an exit, such as contracts, employee agreements, and intellectual property rights. A founder needs to work with experienced legal counsel to address all legal issues appropriately.

Final Thoughts

Planning an exit is a crucial aspect of running a startup. A founder must be prepared to consider the key factors, start planning early, and be aware of the risks involved. With careful planning and preparation, a founder can maximise the value of their business and secure a successful exit if and when the opportunity arises.

About the Author

Adam Ryan is a Professor of Practice (Adjunct Professor) at Monash University and is a principal at Watkins Bay. Adam has over twenty years of start-up experience in Australia and the USA. An expert in Company Structuring for Innovation, Strategy, Mergers & Acquisitions, and Capital for early and growth-stage businesses.