How to financially prepare for investor exits

What to do when your company’s investor pulls out

Whether your business is at an early stage or it’s more established, the financial boost provided by external investment, such as from private equity firms, angel investors, and venture capitalists, is invaluable.

It’s important to plan and prepare the business for investor exits, however, especially as circumstances can quickly change within an industry. Although some investors may have firm plans for how and when they’ll exit, a range of potential exit routes exists.

So, how can you financially prepare your business for an investor’s exit?

Include investor exits in your business plan

The best way is to lay out your blueprint for an investor exit in your business plan. This provides a valuable roadmap for the business and clarity for all parties. You might include your expectations for the timing of an investor exit, for example, and how the business will deliver on their commitment to provide a financial return.

It’s important to be reasonable with the timeline in this respect. The unavoidable volatility in business can derail an anticipated growth trajectory, but the timeline for investment and return commonly depends on the type of investor.

When might an investor wish to exit?

Exit timelines vary depending on whether the investor’s goal is a short-term or long-term return. For example, angel investors typically invest for at least five years, whereas a private equity firm might view five years as a maximum duration before exiting.

Venture Capitalists (VCs) typically take an even longer-term approach to investing – perhaps for up to 10 years before they exit. So what could an exit look like when the time does come?

What types of exit might an investor choose?

A range of exits is available to investors and each has its own considerations and challenges. Ideally, though, the exit route needs to correlate with your business’s plan for growth and expansion.

Possibilities include:

• Trade sale to a larger organisation or a business aiming to expand – this is usually an existing company in the same or a similar industry
• Share sale to an individual investor or a group of investors, such as venture capitalists or a private equity firm
• Management buyout (MBO) may be the ultimate goal for larger businesses where the existing management team wants to buy the business’s assets
• Share repurchase, where the company itself buys back the investor’s stake in the business, could be a possibility
• Initial public offering (IPO) involves listing an established company’s shares on the Stock Exchange and offers investors the opportunity to exit whilst also attracting new investment

Professional guidance on preparing for an investor’s exit

UK Business Finance can provide support at every stage of the investment process. We’re an independent commercial finance brokerage with extensive industry-wide experience and will provide the reliable guidance you need.

We’ll help you attract the most suitable type of investment and financing for your business, including how to plan for when an investor exits. Please contact one of the team to find out more.