In a reality of “Exit or Nothing”, when in 90–95% of the times it is mostly “nothing”- There is another way.
As someone who is over 15 years in the Startups ecosystem, it is safe for me to say that most (if not all) entrepreneurs, and surly investors are in it for the “Exit” (be it M&A or IPO).
Reaching the “Exit” is the holy grail which can make the founders of a startup rich, and their investors happy with their “investment multiples” (the number of times they got over the money they invested). “Exit Strategy” is an important slide of any investment Deck shown by a Startup to investor of any kind.
Sadly, global statistics shows that between 90%-95% of Startups fail, turning the “Exit or Nothing” approach into mostly “noting”. Investors and VC’s consider those statistics as part of their business model. Most of them expect only 1 out of 10 startups, they invested at, to succeed. Leaving the founders of the other 9 Startups to keep “trying” to make things work, or shut down.
Entrepreneurs will most definably try to make their company successful, most of the times even against all odds. Making Pivots, and thinking differently can sometimes work, and there are several huge success stories supporting it. But what if nothing works and the founders of the startups understand it too? Are the founders of the “other 9”, not so successful Startups are really doomed to struggle for many years or close their company?!
Apparently there is an “Exit back door” which enables the founders to leave their current stage, on their way for their next big challenge. Such a possibility is called the “Tactical Exit”.
“Tactical Exit” usually refers to selling or merging the company to other, for low sum, or no sum (equity based Merger). It will not make the founders of the Startup rich, but it’ll enable them to close a chapter in their life, and take all that they learned to their next Challenge. It proves the founders were doing the best with what they had.
But will their investor agree with such tactical exit?! It is easy to check. When investors believe in a company they invested at, they will usually participate in their next round. Will they do so in your next round? I guess founders in those positions, already know the answer.
“Tactical Exit” just like investment in the good times, does not “happen” for itself. Founders who came to the understanding that Tactical Exit is the right approach for them, need to work for several months in locating one!
** The Author Avihai Michaeli is a “Tactical Exit” achiever