An investor buys shares in your company at a given price. An exit means an option to sell them at a higher price than he had paid at the time of purchase. Investors have three exit options:
1. Another company buys your company and hence you, all the other shareholders and the investor sell your shares.
2. IPO (initial public offering): The Company may be listed on a stock exchange, giving the investor an option to sell his shares in the public market.
3. Part sale: Another investor or company buys up the investor’s shares.
In all cases, the investor is looking at selling his shares at a higher price than he had paid for them, thereby getting a return on his investment. The exit is calculated by the number of times the return exceeds the initial investment.
For example: If someone invests $ 100 in a business and he gets back $ 1,000, the exit is 10x. A good figure for an exit depends on the size of the investment, the kind of investor and the time period of the investment.
It is very important for a venture capitalist to foresee the exit in a company; else, it is like putting your money into a fixed deposit and not being able to withdraw it when you want to. Learn more about exist and other investment related matters only at University Canada West.