Where can I find examples of investor exit strategies, such as those
preferred by venture capitalists, business angels and entrepreneurs?

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Request for Question Clarification by omnivorous-ga on 09 Apr 2004 17:45 PDT

Forsytha --

Typical VC and startup strategies are to provide seed money during the
first 3-5 years of operations for a company, then either sell the
company or take it public.  None of that is any great secret.  Your
question seems to imply that you're seeking something else -- such as
"what happens if the investment isn't liquid at the 5-year mark?"

Can you clarify?  Or are you simply seeking a description of how
venture capital or other startup funding works in general?

Best regards,

Omnivorous-GA

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Request for Question Clarification by wonko-ga on 09 Apr 2004 17:47 PDT

If it would suffice as an answer, I would be happy to provide a list
of common exit strategies favored by venture capitalists, angel
investors, and entrepreneurs that I am acquainted with.

Sincerely,

Wonko

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Clarification of Question by forsytha-ga on 10 Apr 2004 01:55 PDT

I am based in the UK, and reasonably familiar with how VC funding
works in general. I am more than certain that any investment will be
liquid well within the 5 year mark.

I know that investors will want to move on with their money unless the
opportunity is returning such a high ROI that it would be insane to do
so; and I may have one of these in the two opportunities I am
developing in parallel. At some point I need to ensure that I can
regain any control I have relinquished.

I would prefer the list of common exit strategies from wonko-ga as
this will expand my knowledge. Hopefully with some lateral thought I
may be able to engineer alternative exit options into my business
plans.

Thanks,

There are numerous exit strategies that are employed by venture
capitalists, angel investors, and entrepreneurs.  All of them are
intended to free up at least a portion of the capital invested,
preferably at a high rate of return.

The most well-known exit strategy is selling shares to the public via
an initial public offering.  This allows investors to directly sell
some or all of their shares to the public.  If they are willing to
accept dilution, new shares can also be created for sale to the public
to increase the financial resources of the company.

Sometimes investors require that they receive preferred stock with a
condition that no one can sell shares until a particular level of
dividend has been paid to the holders of the preferred stock. This
ensures the investors of receiving a return before anyone else can get
one.  The funds for the dividend may come out of the company's
operations or may result from a portion of the proceeds of an initial
public offering.

For company managers desiring to maintain control, they can engage in
a management buyout of the investors by purchasing the investors'
shares.

The most common exit strategy for venture capitalists is that they
allow the company to be acquired by another one.  They may receive
cash for their shares and/or their shares may be converted into
another stock that is already publicly traded, allowing them to sell
shares in the public market.

Angel investors in particular may sell a portion or all of their
interest to venture capitalists or other angel investors, and
venture-capital firms may sell a portion or all of their interest to
other venture-capital firms.

If things go badly, investors may elect to liquidate the company and
receive whatever they can get for its assets.

"Company Ownership and Investment Exit Strategies" Ten3
http://www.1000ventures.com/presentations/iquity_exit.html

The above URL provides a slide show with information regarding the
frequency with which the various exit strategies are employed by
venture capitalists and angel investors, along with a view of how
ownership is typically distributed amongst stakeholders.

"Venture Capital Basics Everything You Ever Wanted to Know About
Venture Capital Financing Terms" By Marc Porter, 12.4.2003, Connect
http://www.connect-utah.com/article.asp?r=221&iid=21&sid=1

The above URL provides an excellent overview of venture-capital
financing terms, including exit strategies.  While the specific
regulations discussed to apply only to the United States, the concerns
of the venture capitalists are universal.

"Our investment process" by Joi Ito, May 17, 2003
http://joi.ito.com/archives/2003/05/17/our_investment_process.html

The above URL provides another perspective on venture-capital
investing from the perspective of a venture capitalist.

I hope the above information is helpful to you as you develop your business.

Sincerely,

Wonko

ZBZ5 again! This is all I need. Once again, the information has been
provided in a clear and concise manner. Thank you.