Exit strategy describes how investors and founders plan to convert their equity into liquid returns. It is a critical component of the venture capital model, where returns are only realized when a company is acquired or goes public.
The primary exit paths
1. Acquisition (M&A)
A larger company buys the startup, either for its technology, team, customers, or market position. This is the most common exit for venture-backed startups. Acquirers include:
- Strategic buyers — companies in the same or adjacent industry seeking technology or market share
- Financial buyers — private equity firms seeking returns through operational improvement and resale
2. Initial Public Offering (IPO)
The company sells shares to the public on a stock exchange. IPOs provide liquidity but require significant scale ($100M+ ARR is now typical for US tech IPOs) and come with ongoing disclosure and reporting obligations.
3. Secondary sale
Investors or founders sell shares to other private investors without a full company exit. Secondary markets (Forge, Carta) have made this increasingly accessible. A common path for early employees and angels who need liquidity before a full exit.
4. SPAC merger
A Special Purpose Acquisition Company merges with the startup to take it public without a traditional IPO process. Less common post-2022 after many SPAC deals underperformed.
5. Acqui-hire
The company is acquired primarily for its team rather than its product or revenue. Typically occurs when the startup has not found product-market fit but has valuable engineering or product talent.
Why exit strategy matters in fundraising
Investors will ask about your exit strategy — not because they expect you to predict the future, but to assess whether you understand the venture model and can articulate why strategic acquirers would want to buy your company.