Every week, I talk with angel investors and venture capitalists in Austin and beyond, and often I ask what common mistakes they see startups make during a pitch. Most are quick to reply that as potential investors, they are most wary if a company does not offer an exit strategy. Specifically, a plan for growing and becoming so desirable it can eventually either be acquired by another company or successfully go public.
In fact, all smart startup executives know if they’re asking for funding, outlining such a scenario is essential. It’s not simply recommended; it’s required. Otherwise, how can investors be sure of a return on their investment?
Basically, investors need to see you understand the funding pitch from their point of view. If they don’t, it’s an immediate red flag.
The word “exit” is often misunderstood by early-stage startups. It’s not about the founder or CEO cashing out. It’s about following up on the promise to investors to turn a profit and deliver solid ROI. While it may seem like getting ahead of yourself by talking exit before even getting funded, you can be sure investors want to see, up front, how you intend to make that funding worth their while.
That can be as simple as presenting details about companies in the same market that have successfully exited via IPO, merger, or acquisition. The very best pitch decks go a bit further, citing the value of such companies at time of offering. Even better if you can highlight how your company can both benefit an acquiring company and benefit it in turn. When I look at a recent investment round like Grammarly’s securing of $110 million, I wonder about the exit strategy its CEO must have presented to inspire such vigorous confidence.
In a startup pitch, hand-in-hand with good exit planning is demonstrated intention to build brand equity. That’s the very quality that makes your company valuable enough to go public or be acquired. I’ve been involved in numerous acquisitions and IPOs throughout my career, and lack of brand identity is the pitfall that stands out most. I’ve even been in situations when, speaking to the press, I’m forced to educate reporters on what an acquired company even does. To investors, such fuzziness suggests investment risk; for startups, it’s a tremendous missed opportunity to maximize dollar value at time of exit. Startups can do a lot to impress an investor by showing they see the importance of brand equity and how it can be leveraged, in addition to product offerings, for a better deal.
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