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Exit Strategies for Equity Financing: Planning for the Future

Explore exit strategies for equity financing and learn how to strategically plan for the future of your startup. Gain insights into maximizing returns for investors.

By teammarquee . May 26, 2023

Debt and equity financing are vital ways of funding. Debt and equity financing are ways businesses can raise capital to finance their operations. Debt financing involves borrowing money from lenders, such as banks, financial institutions, or bondholders, with the expectation of repayment with interest over a fixed period. 

Equity financing, on the other hand, is raising capital by selling shares of ownership in a company. Equity funding for startups works without taking on debt financing. As a business owner, understanding private equity financing and the types of equity financing is vital to raising equity funding for startups. 

Debt-equity finance is a third option; sort of a mix of both. In debt-equity finance, a company can issue debt securities such as bonds, notes, or loans to borrow money from investors, while simultaneously issuing equity securities such as stocks. It’s flexible and cost-effective, but it requires the careful management of financial risks.

As most business owners soon find out, while taking on equity financing, they need to have a startup exit strategy to cash out. Having a startup exit strategy for a startup business enables investors to make an assumption on when they’d get a return on investment. This article explores the best exit strategy for startup businesses.

Common Types of Equity Financing

Angel Investments – HNWIs, known as angels, invest their own funds to provide private equity financing

Venture Capital – Venture capital (VC) is one type of equity financing that involves funding startups that have high growth potential. 

Crowdfunding – securing small amounts of capital from a large number of people to fund a business. The 4 different ways to raise money via crowdfunding are: 

  • Peer-to-peer lending
  • Rewards-based Crowdfunding
  • Donation
  • Equity Crowdfunding 

Initial Public Offering (IPO) – IPO is the process by which a private firm goes public by offering its shares to the general public on a stock exchange for the first time. The company issues shares to the general public to raise finance and helps investors turn a profit.

Exit Strategies for Equity Financing

Below are some startup exit strategy examples that could be used by owners looking to cash out. Keep in mind that these startup exit strategy examples are to be only analysed and be aware of and not looked at as definite plans of action. For each owner, it will be different. 

Acquisition by Another Company


Access to Resources: includes technology, intellectual property, employees, customer base, and market share.

Economies of Scale: resulting in reduced costs, increased efficiencies, and improved profitability.

Diversification: reduced dependence on a single product or market segment.

Competitive Advantage: if the market share has increased of the company


Integration Challenges: Integrating operations can be a complex and time-consuming process.

Financial Risk: If the acquisition does not generate the expected return on investment, it can hurt the acquirer’s financial performance.

Regulatory Issues: Regulatory issues can occur after the acquisition such as antitrust concerns or environmental liabilities.

Reputation Risk: If one of the companies has a negative market standing or is involved in controversial or unethical practices, it could be damaging to the brand and customer trust.

Best Practices for Maximizing Acquisition Value

Pre-Sale Planning: Have a clear plan of action, a strategy to complement it, and an advisor to help you plug in the gaps. Finally, make sure that your goals are attainable.

Strategic Partners: Having a shared vision with the newly formed synergy that would arise is crucial. Make sure that the reasons for the acquisition are the same amongst both parties. Identify and leverage how the other company would help you and vice versa.

Valuation: Having an advisor who can tell you how the market realistically values your business can help you avoid being overly optimistic. This then can also create leverage since you know how much better (or worse off) your business is valuation-wise compared to your competitors. 

Advisor: This builds on the last point of having someone on your team who can keep you grounded, know what works and what doesn’t, have a fair bit of experience to navigate potential dangers, all the while getting the best offers for you and your business, and taking care of tax and other legal issues as well. 

Initial Public Offering (IPO)


Access to capital: can be used to fund growth opportunities, increase the scale of operations, meet debt obligations such as any business equity loans such as private equity loans (including commercial equity loans, and commercial property equity loans) or invest in R&D.

Increased liquidity: the selling of shares provides liquidity and an opportunity for early investors to cash out.

Credibility: IPOs are viewed as mature and stable compared to private firms

Wider range of investors: these institutional investors, mutual funds, and retail investors.


High costs: such as legal, accounting, underwriting, and marketing expenses

Regulatory and compliance necessities: namely financial reporting, shareholder communications, and disclosure requirements

Loss of control: in addition to being subject to more scrutiny, owners have lesser control over the board

Short-term focus: there’s pressure for short-term results, which can disrupt long-term growth and innovation.

Management Buyout (MBO)


Management expertise: the existing management already knows the business which could help stabilise operations.

High motivation: since management funds are used, the team may be better motivated 

Smooth transition: there’s often little to no need for an extensive due diligence process compared to acquisitions 

Company culture: the existing management is more likely to retain and strengthen the resolve of the company.

Confidentiality: since there’s no need to advertise the business for a sale, it can be more confidential in contrast to an acquisition.


Lack of capital: the management might need to take on significant debt such as business equity loans such as private equity loans (including commercial equity loans, and commercial property equity loans) to complete the transaction.

Limited number of buyers: only the existing management team is involved in the transaction.

Conflicts of interest: sometimes management teams have a short-term focus rather than a long one.

Limited experience: some management teams lack the experience and skills needed to run the business completely by themselves

Valuation: there could be problems arriving at a value if the parties involved have contrasting opinions.

Key Considerations for a Successful MBO

Financing: how the transaction would be financed

Valuation: what the value of the firm would be

Due Diligence: This includes reviewing financial records, legal documents, contracts, and other pertinent business information.

Management Structure: new structures such as establishing new roles and responsibilities for the management, and identifying areas where new talent is needed.

Communication: needless to say, it has to be effective. Clear communication channels must be established. 

Legal Advice: legal advice to properly execute all the legal and other requirements 

Integration: what the changes would be to operational processes, personnel, and other systems.

Private Sale to Investors


More flexibility: including things like the timing of payments, the types of assets being sold, and the level of due diligence needed.

Less regulatory mistakes: private sales are subject to fewer regulatory requirements and disclosures than public offerings, saving time and money.

Faster access to capital: since the transactions can be completed more quickly, the company has faster access to funds compared to other options.


Limited range of investors: limited to a smaller group of potential investors, limiting the price that can be gotten for the assets being sold.

Lesser liquidity: these transactions usually involve securities that are less liquid than publicly-traded ones, making it more difficult for investors to sell 

Less transparency: less transparent than public offerings which can create an information bias

Best practices for negotiating a private sale

Step 1: Set clear objectives

Step 2: Do your research

Step 3: Study opening offers

Step 4: Listen and ask questions

Step 5: Be prepared to compromise

Step 6: Make sure to put everything in writing

Step 6: Keep communication lines open

Factors to Consider When Choosing an Exit Strategy

Use these pointers to remind you what to consider when choosing an exit strategy:

  • Timeframe for exit
  • Company valuation
  • Goals of the company and its stakeholders
  • Market conditions
  • Legal and regulatory considerations

Wrapping Up

The options available are plentiful; an acquisition, an IPO, an MBO, or a private sale. Choosing the right exit strategy is crucial since it regulates how and when they will cash out of their investments. It can impact the returns and the success of the investment. An appropriate exit strategy can provide liquidity, manage risks, and help achieve their financial goals. One must consider investor goals, company stage, market conditions, and valuation to select the apt exit strategy. Last but not least, seek professional guidance. If you’re looking to boost your business to the next level, call Marquee Equity at +1-213-600-7272 and finally have the business you’ve dreamt of.

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In debt-equity finance, a company can issue debt securities such as bonds, notes, or loans to borrow money from investors, while simultaneously issuing equity securities such as stocks.

One must consider investor goals, company stage, market conditions, valuation, and legal considerations when selecting an apt exit strategy.

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