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25 June 2021, 17:00 ● 9 min reading

How to exit a startup without making mistakes: tips from Igor Ryabenkiy

If you decide to invest in a venture, take care beforehand about how to properly exit. There are several exit plans for startups, but in Russia the exit process for investors isn’t always so transparent. Igor Ryabenkiy, founder of the investment company AltaIR Capital and the venture club AltaClub, shares his advice on how to arrange exits for venture investors.

Invest or wait
Even at the initial stage of investment, business angels and funds understand that not all projects can increase their capital manyfold. To assess a startup’s potential and to avoid losing money, ask yourself a few questions: "How do you see the company in 3 or 5 or 7 years? Who in the industry is the target investor for the next round? Who are the major buyers in the market?"

All of these questions will help you understand the team's ability to reach the next stage in a competitive market and assess your planning horizon. A project’s success depends on a variety of factors - market, stage, geography, and the experience of the founders. Reliable answers will make it easier for you to make a proper and informed investment decision.

Two exit strategies
Once you've invested in a company, immediately think about exiting. There are two basic exit strategies: an initial public offering (IPO) and a merger or acquisition (M&A) transaction.

The first strategy requires some financial investment. You will have to hire consultants and auditors to assess the transparency of the business with a system of control and accounting. The startup’s management will also have to prepare for a corporate restructuring.

The second strategy is more common. The main thing is to try to bring the project to a certain degree of maturity, otherwise the potential buyer will not want to invest. Some investors offer to buy a certain percentage of the startup, but there are many risks in this approach. For example, the investor may turn out to be the only potential buyer and create unfavorable conditions for selling the company. So be careful.

Also, don't be charmed by an investor's offer to create a joint venture. As in the situation described above, the investor has more leverage over the company.

Who is involved in the exit
Brokers and investment banks are sometimes involved in the exit. You can only trust them if the investment bank’s team knows the market and potential buyers.

Less often, the founders are able to help exit a startup. If they wish, they may offer to buy out the shares of their financial investors. This model is called management buy-out.

Finally, if the startup is rapidly developing, new investors may buy out the stakes of previous investors. They believed in the startup too late and did not have time to enter the round, but they assessed the company's prospects and decided to join by buying a stake.

What not to miss: the details of selling the project
Once you start the exit process, analyze the company's valuation, the actions of potential buyers and the deal’s deciding factors. Do your own due diligence and try to anticipate any important nuances for the potential buyer.

The next step is to describe how the transaction will proceed and gather all operational and financial data with the top manager. These steps will help you make a successful exit and multiply your initial investment. Be daring and thoroughly analyze all metrics before exiting!
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