Exit Options for Venture Capitalists

Venture capital firms require an exit route for them to realise a return on their investment. The time from investment to exit can be as much as ten years or as little as two years. At the time of exit, a venture capitalist may not sell all the shares he/she holds. There are five main exit options.

Trade sale

Trade sale involves selling of company’s share to another company, possibly in the same industry sector. Most of venture capital exists are achieved through trade sales. Venture capital firms prefer e trade sale exit route over an IPO because the option allow them to realize their investment in cash.

Repurchase

Repurchase occurs where the company buy back the equity investors’ shares. To repurchase shares, VCs need to consult laws governing companies.

Secondary Purchase

This occurs when the private equity investors’ shares are purchased by another investment institution. This option is the most suitable for a company that is not ready for trade sale or flotation, but whose VCs may need to exit.

Flotation

This option involves obtaining an IPO or flotation on a stock exchange. Going for a flotation or IPO has several attractions for the shareholder management team or entrepreneurs, especially when they want to carry on with their participation in the business.

Involuntary exit

This occurs when a company goes into liquidation or receivership.

References

http://www.ivca.ie/entrepreneurs/exit-options-for-investors.html

https://fundgator.wordpress.com/2012/09/13/venture-capital-vc-exit-options/

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