For every startup, there comes a time to ask: “What’s next?”
In the startup world, success isn’t just about building a product or attracting users — it’s also about knowing how and when to exit. That doesn’t mean giving up. Quite the opposite. An exit strategy is a plan for how founders and investors can turn their equity into real returns after years of building something valuable.
Whether it’s selling to a bigger company, listing on the stock market, or simply passing the torch, exit strategies are a vital part of any startup’s long-term roadmap.
What Is an Exit Strategy?
An exit strategy is a planned approach that allows startup founders and early investors to cash out their shares, either partially or fully. For founders, it might mean handing over control. For investors, it’s how they make money — often many years after their initial investment.
Exit doesn’t always mean the business stops. It can continue under new ownership or as a public company. But it does mark the end of a chapter — and hopefully, the beginning of a financially rewarding one.
Types of Exit Strategies
- IPO (Initial Public Offering)
An IPO is when a private startup offers its shares to the public for the first time through a stock exchange. It’s one of the most prestigious and high-profile ways to exit, giving the company access to large capital and allowing early investors to cash out.
Airbnb is a standout example. After years of VC funding and rapid global growth, it went public in 2020 at a valuation of over $100 billion. The IPO gave its backers and founders significant liquidity — and placed the company under the watchful eyes of the public market.
However, IPOs come with heavy regulatory burdens, high costs, and public scrutiny. That’s why only a small group of startups — typically those with significant scale and brand recognition — pursue this route.
- Acquisition (M&A)
Getting acquired by a larger company is the most common exit path in the startup world. It’s often quicker and less risky than going public, especially for startups that bring valuable technology or talent to the table.
Instagram’s $1 billion acquisition by Facebook in 2012 is a textbook case. At the time, Instagram was a small team, but its explosive user growth and mobile-first strategy made it a powerful asset for Facebook’s future.
Acquisitions can also provide continued support and infrastructure for the startup’s original mission, while offering a rewarding payday for investors and employees.
- Merger
When two startups or companies combine forces, it’s called a merger. This often happens when both sides believe they can achieve more together than separately — whether through shared resources, customer bases, or technologies.
Grubhub and Seamless, two major food delivery players in the U.S., merged in 2013 to better compete in an increasingly crowded market. By uniting operations, they strengthened their market presence and streamlined costs.
- Secondary Sale
In a secondary sale, early investors or employees sell their shares to another private investor or investment firm, without the company needing to go public or get acquired. This provides partial liquidity — often in late-stage startups that are still growing but not yet ready for an IPO.
OpenAI’s investors and employees recently benefited from this type of exit, as the company arranged a secondary share sale valued at over $80 billion, giving early backers a return while it remained private.
- Buyback
Sometimes, the company itself — or its founders — repurchases shares from early investors. This allows founders to regain more control and give liquidity to investors without involving external buyers.
This method is more common in founder-led startups that prefer to remain independent or delay external exits until more favorable conditions.
- Liquidation
If a startup fails to gain traction or runs out of capital, liquidation is the final step. The company sells off its assets and distributes whatever is left to creditors and stakeholders. While it’s not a desirable outcome, it’s still a formal exit that brings closure.
These types of exits remind us that not every startup journey ends with glory — and why risk management is crucial for both investors and founders.
When Should Founders Start Thinking About Exit?
Many founders think about exit only when the opportunity appears. But experienced founders and VCs know that exit planning should start early. Here’s why:
- Investors often ask about it before investing — they want to know how they’ll get returns.
- It shapes your business model — some founders build for scale (IPO), others for strategic value (acquisition).
- Your legal and financial decisions now will affect how attractive you are later (e.g., clean cap tables, intellectual property ownership, audited financials).
Startups should think about exit strategies after achieving product-market fit, and especially when raising Series A or beyond. It doesn’t mean rushing to sell, but rather being strategic about the path ahead.
Conclusion
An exit strategy is not about giving up on your vision. It’s about knowing where the road leads. Whether you’re a founder dreaming of building a unicorn or an investor looking for the next big win, planning your exit is as important as starting the company itself.
Because in startups, how you finish matters just as much as how you begin.
Prepared by Navruzakhon Burieva
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