Building and running a successful start-up is a major achievement. But what happens when the time comes to pass a company on? Whether it’s through a sale, an IPO or a merger, choosing the right exit strategy is crucial to ensuring that an entrepreneur's life work endures.
Many founders dream not only of realising their vision and creating a scalable business, but also of eventually earning a return on their efforts - without having to be involved in the day-to-day operations anymore. Which is why after the growth phase, many entrepreneurs face the same pivotal question: how do I exit my company?
An exit is about more than just deciding how and to whom the company should be sold. Many founders aim to maximise the value of their start-up while also achieving personal and professional goals, and exploring new opportunities. Luckily, there are many entrepreneurs they can take inspiration from. For example, Katharina Jünger, founder of Teleclinic, in an interview once remarked, "You think very carefully about whether you want to give up the company you love in order to have X amount of money in the bank. I did the maths very carefully." Samy Liechti, founder of the Swiss company Blacksocks, sold his start-up after 24 years. In an interview with the Swiss newspaper NZZ, he said, "Securing a quick exit for a lot of money is the wrong motivation for start-up founders."
Before undertaking anything else, founders should first know their reasons for selling. A successful exit begins with a clear vision and an honest answer to the question: Why do I want to exit the business? "Founders need to know what they want and why", says Christian Ortner, a relationship manager at LGT Private Banking, who often advises start-ups. Another critical question is: "Do I want to exit quickly or do I want to remain involved? Once they reach that point, it's important they consult a tax advisor, a bank or a lawyer", he says.
Manuele Lussu, Head Relationship Management Austria at LGT, adds: "A strong network of advisors and experienced founders is crucial. Together with smart investors and employees with expertise in this area, these connections can be invaluable in helping founders in their decision-making."
The next step is to consider "what": What exactly is the company? What is it worth? What does it do? What sets it apart? The company must be exit-ready, with clear financial structures, robust governance, a convincing growth story and reliable data.
Dominic Berner, a relationship manager at LGT, explains, "At this stage, it's important to have a comprehensive slide deck of KPIs and do a thorough due diligence review."
The next question is "how" - how should the start-up change hands? Options include selling to a corporate buyer, pursuing a trade sale, executing a leveraged buyout, initiating an IPO or merging with another company. "Which exit type is best depends on factors such as the industry, the size of the company and the market environment", says Ortner.
In a merger, two companies join forces to combine their strengths. When selling to a corporate buyer, a bigger player acquires the start-up to then integrate its technology, products or market share. This is a popular strategy among tech start-ups. A trade sale targets competitors seeking to gain market share or complementary products through the acquisition. In a leveraged buyout (LBO), investors acquire the company with a mix of debt and equity, which is ideal for stable, profitable firms. An initial public offering (IPO) allows the company to sell shares on the stock exchange, and appeals to high-growth start-ups in particular. "Every exit strategy has advantages and disadvantages", says Manuele Lussu.
Corporate buyer: Sale to a large company
Trade sale: Sale to a competitor
Leveraged buyout (LBO): Sale to financial investors
Initial public offering (IPO): Going public
Merger: Merging with another company
Finally, there is the "when" - when is the right time to exit? German entrepreneur Verena Pausder, who founded Fox & Sheep in 2012 and exited the company in 2019, shared the following in an interview with Business Insider: "Founders really enjoy building their company. And once it's up and running, it's a good time to leave." But pinpointing that moment is not always straightforward.
"You really have to get a feel for the right time to exit», says Dominic Berner. He emphasises the importance of assessing the market conditions, ensuring the start-up's technology is innovative and future-proof, and verifying that the business delivers clear added value. "If everything aligns, you should act without hesitation», he advises, adding, "You have to set aside your emotions and act decisively."
You can find more information about the perfect time to sell your company here.
In addition to being a sale, an exit is an opportunity to place your vision in new hands, where it can continue to grow and evolve. The key lies in letting go without losing the essence of the company. With the right preparation and a carefully chosen exit strategy, an exit can become a pivotal milestone that sets the stage for the next phase of growth.
