06 Aug Choosing the Best Exit Strategy for Your Tech Startup
It’s every founder’s dream: build something amazing, then cash out and move onto the next chapter. But successful tech startup exits don’t just happen. They require planning, ingenuity, and a bit of luck. For most tech companies, exit planning comes down to a choice between mergers and acquisitions (M&A) and an initial public offering (IPO). So which is right for you? Here’s how to make the decision.
IPO vs. M&A
Before building your exit plan, you must first understand the key differences between an IPO and M&A:
- Selling your company usually marks the end of the business, while an IPO publicly unveils your business in a new form.
- Your team continues to run the business with an IPO, while M&A means handing over the reins.
- M&A initially generates more revenue than an IPO, because of the conservative valuation methods used with IPOs. However, an IPO can generate significantly more revenue over time—but only if it succeeds.
- With M&A, you may have some working capital left over.
- Acquisitions are generally less work than IPOs, though both require significant planning.
- Once M&A is complete, it’s done. An IPO requires ongoing work to ensure the transaction succeeds.
- You’ll usually continue in your current role after an IPO, at least for a little while.
Choosing Between an IPO and M&A
For most companies, M&A is going to be a better, easier, more profitable exit strategy than an IPO. But there are exceptions. Some tips for choosing the right option include:
- Weigh whether you want to be involved in the business in the future. If the answer is yes, then an M&A is probably not the right choice (though you can negotiate for ongoing involvement in some transactions).
- Consider your debts to investors, and assess whether you feel comfortable taking on the risks inherent to an IPO.
- Do you want to finance something else, like a new business? If so, M&A can raise much more capital than an IPO.
- Can you manage the regulatory scrutiny that comes with an IPO? You’ll need a dedicated team, and that can get pricey and time consuming.
- Can you manage uncertainty regarding the future of your position? If so, M&A may be best, since you never know what the acquirer is going to do. If you know you want to remain at the helm and see the company through its next chapter, an IPO could be a better strategy.
No matter which path you choose, expert guidance can make the difference between your business soaring to greater heights and falling flat on its face. Both M&A and IPOs can be complicated, and a DIY approach is not appropriate. Work with a skilled team of advisors who has experience in your niche for the best possible outcome.