Startups – is it all about the exit?

[ 0 ] June 20, 2010 |

There was an interesting post at TechCrunch of late about the whether or not  entrepreneurs need an exit strategy.

The question is ironic because the vast majority of entrepreneurs have no exit strategy other than survival. Pretty much every sole proprietor, from the neighborhood dry cleaner or your gardener,  is an entrepreneur in every sense of word, but if you asked them about an exit strategy they’d probably think you were the fire marshal.

No, exit strategies only are relevant when an entrepreneur takes other people’s money (sometimes referred to as OPM). Whether from a friend, family member, or professional investor, after wanting to know what the money is going to be used for, comes the inevitable questions: When am I going to get it back?  That’s why you need an exit strategy.

And here is where the problem begin. Some investors want a guarantee that their money will be returned.  That’s basically a loan. Others want to take a bit more risk and share in the success and upside potential. For these invstors the question remains, how do they get their money back?

The traditional Venture Capital model presumes after a company grows and becomes successful, the exit will be either that the company get’s bought or goes public.  Either way, the investor gets their money back.

As the TechCrunch post describes, there are lots of businesses that don’t want to pursue either of these paths. Life is just fine as a stable, profitable company. Not only can these firms be great companies, they can also be great investments.  However, large fraction of traditional Venture Capital firms would have no interest.  In fact, Fred Wilson recently descried his criteria for success and it was primarily based on financial success. And when he says ‘We are financial investors and we do want to see our portfolio companies become valuable’, what left unsaid is that ‘….we do want to see our portfolio companies become valuable…’ so we can sell it and get out money back.

The kinds of investors that would invest in these kinds of companies would most likely have a long term investment horizon and would be comfortable with a share of profits paid out as dividens. But not only that, they very likely would have to be perfectly aligned with the goals of the company.  There are lots of these kinds of investors too, its just that they don’t look like traditional VC and very likely are investing their own money, not some one else’s.

If you are a startup in the space in the education space, how are you looking at your exit?  Are you bootstrapping and happy to have a lifestyle business or are you finding the struggle of angel or VC money and looking at returns?

Related posts:

  1. Venture Capital in Education Summit Seeks 10 Companies for Education Innovators Showcase
  2. The Investors’ Circle Fall Venture Fair – Applicant Deadline July 30
  3. Ten Early-Stage Education Companies Selected for “Educators Innovators Showcase” at VC in Education Summit
  4. Seeking Companies and VC’s for Venture Capital in Education Summit 2010
  5. Late Nite Labs “Rocks” at Venture Capital in Education Summit 2011


Category: Higher Education, iPhone App, K-12, Startl Biz, Venture Capital

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