Companies in the technology sector typically have a much shorter timeline to exit than almost any other sector. This means that right from the time that you start your business you need to be thinking about your exit plan and ensuring that your structure, investment strategy and product, match that plan.
I meet so many business owners who have never really thought about the exit strategy for their business and certainly not planned for one. However, if you want maximum return for all your hard work, you must plan accordingly. Here are the some of the key avenues for exit that technology businesses typically use.
This is the most popular exit strategy for businesses in the tech sector and there have been many examples recently of tech businesses with relatively few tangible assets being sold for high value sums simply on the basis of their IP profile. If you have investors in your company, they will often have invested on the assumption that your business will eventually be acquired by another business and their investment realised. If you are thinking of selling, it is vital to make sure your business is structured to make it an attractive prospect for a potential buyer.
If you think that a merger opportunity could exist for your firm and you have found a company that would work well with yours, then that may be your exit strategy. If you’re looking to exit entirely, then it will be important that the merger partner can cover your skill set. However, if you want to keep some involvement in the business, a merger can be a good way of increasing the overall value of the part of the merged business that you bring to it. Think about what your business is worth, not just on its own but as part of a merged business and make sure that you do not under value what you have.
Passing your business on to a family member can be the ultimate dream for many business owners. A key advantage of this exit strategy is that it gives you the chance to train your successor and also retain some control of the business should you wish to do so. However, beware! This can be a high risk strategy because of the close relationships of the parties involved which sometimes mean that emotions run high and your successor may not appreciate your close interest in the business!
Sometimes existing employees or managers may be interested in buying your business. This can work well for a business owner as they get buyers who really want to see the business do well. If you think this is a potential exit strategy, you can set up an Employee Share Ownership Plan which allow employees to acquire equity in a company.
Stock market flotation:
This is potentially a very lucrative exit route and has made a lot of money for tech firms in the past. Shares are issued which are tradeable on the stock market and if the float is successful, the business owner can stand to gain a small fortune. However, if you are planning a stock market flotation, there are strict regulations that you must follow and also significant costs involved in this type of exit strategy. As well as that, success is by no means assured. You must make sure that you have advisors who can give you both the technical advice, which is a pre requisite, plus also plenty of strategic advice.
Shutting up shop:
Some business owners decide to just “shut up shop”. There is no obligation to hand the business on or sell it on. In this scenario, your assets will need to be disposed of, creditors paid and any remaining funds split between shareholders.
Whatever option you choose, make sure you have good advice from a financial expert who will help you