Exit Strategy
An exit strategy is the plan for how a company's investors and founders will turn their shares into cash — a sale to a strategic buyer or a fund, a listing, a secondary sale of a stake, or a wind-down — and when. Every venture and private equity investment is made with an exit in view, because the fund must return money within its life; companies that plan the exit early are worth more when it comes.
- Also known as
- Exit, Exit plan, Liquidity event
- Used at
- the investment case of every fund, the shareholders' agreement (drag-along, tag-along, registration rights), board strategy from Series B onward, and the founders' own planning
- Binding
- the exit rights in the shareholders' agreement are; the strategy itself is a plan
- Typical routes and shares
- trade sale to a strategic buyer (the most common exit for fintech companies), sale to a private equity fund (secondary buy-out), IPO or direct listing (rare, and closed for most fintechs since 2022), secondary sale of a stake (partial exit), and management buy-out
- Typical timing
- venture investors expect an exit five to ten years after their round; a buy-out fund four to six years after its purchase; the choice narrows as the fund's life ends
- Parties
- the founders, each class of investor (whose preferences may point to different exits), the board, advisers, and the buyers or the market
How an exit strategy works in practice
At the Series A the lead investor's memo already says how it expects to get out: a sale to one of five named acquirers, or a listing if the company reaches €100m of revenue. The shareholders' agreement carries the machinery — a drag-along so the majority can deliver the whole company, registration rights for a listing, a tag-along for the minority. From the Series B the board discusses the exit as strategy: which buyers to be visible to, which metrics they pay for, when to run a process. By year five the fund's life and the founders' patience converge on a decision.
The routes trade certainty, price and time. A trade sale is the most likely and the most complete — cash, a strategic premium, a buyer that wants what the company has — and it ends the founders' control. A sale to another fund keeps the company private and the team in place, at a financial buyer's price. A listing keeps the company independent and gives liquidity over time, at the cost of public-company life and a market that may not be open. Secondaries let early investors and employees out without an exit for the company at all.
For fintech the strategic sale dominates, because the buyers — banks, processors, software groups — pay for the licence, the customers and the capability, and because the listing route has been shut for all but the largest since 2022.
Example
A payments fintech's Series B investor writes an exit case in 2020: a trade sale in 2025 at 6–8× revenue to one of four acquirers, or an IPO if revenue passes €120m. By 2024 revenue is €70m; the IPO window is closed; two of the four acquirers have made other deals. The board runs a dual track — a sale process and a listing preparation — and the sale wins: a strategic buyer pays €480m, 6.9× revenue. The Series B fund's 22% returns €95m on €18m invested; the founders' 35% is €150m, of which €40m is deferred over two years to keep them; the employees' options pay €38m. The exit case of 2020 was right about the route and the multiple and wrong about two of the four buyers — which is why it named four.
Common mistakes
- Founders raising venture money without understanding that the fund needs an exit on its timetable, not theirs. - Investors with different preference stacks wanting different exits, and a board that discovers this in the process. - Planning for an IPO in a market that has not opened for the sector in three years. - No drag-along, so a minority holder can stall the exit the majority has agreed. - Running a sale process with no plan B, so the one bidder knows it.