There are several ways that startups can exit, or end their operations and transfer ownership to another company or individual outside of an IPO.
Each exit option has its own advantages and disadvantages. The best exit option for a startup will depend on its individual circumstances and goals. As a Venture Capital investor, exits provide an opportunity for liquidity, either as a profit or a loss based upon the value of the shares at time of exit relative to the value at time of purchase.
Some common ways that startups exit include:
- Acquisition: In an acquisition, a larger company buys the startup and its assets, typically in exchange for a cash payment or equity in the acquiring company. Acquisitions can provide the startup with a significant infusion of capital and can also provide liquidity for the startup's founders and investors.
- Merger: In a merger, two or more companies combine to form a new entity. This can be an attractive option for startups that want to join forces with another company in order to gain scale and access to new markets or technology.
- Initial public offering (IPO): In an IPO, the startup sells shares of its stock to the general public, becoming a publicly-traded company. This can provide the startup with a significant infusion of capital and can also provide liquidity for the startup's founders and investors.
- Liquidation: In a liquidation, the startup sells off its assets and uses the proceeds to pay off its debts. This can be a last resort for startups that are unable to raise additional capital or find a buyer.