A successful exit realizes an investment by selling a company for a profit or transferring ownership through a public offering. It converts an illiquid private-company stake into returns. section 12.1.4
Common exit forms include:
- IPO: lists the company’s shares publicly and lets investors trade their ownership. section 12.1.4
- Acquisition: transfers the company to another business and can pay direct investors and limited partners substantial profits. section 12.1.4
- Fire sale: sells a distressed company mainly to cover debts, usually returning only part of the investment. section 12.1.4
- Shutdown: ends the company without an acquisition and generally represents an unsuccessful exit. section 12.1.4
Table 12.1 Types of exits (successful and unsuccessful)
|
Exit
|
Reference scenario
|
Returns
|
|---|---|---|
|
IPO
|
Company A is a Series C company. After long talks and planning with investment bankers, they finally announce their IPO. After the IPO, an investor can trade his ownership on the stock market.
|
High
|
|
Acquisition
|
Company B is sold to an industry giant for billions. Direct investors are paid out and make a huge profit. Limited partners (LPs) get their profits minus carry fee and their initial investment paid out.
|
High
|
|
Fire sale
|
Company C is a company in distress but can sell itself to another company. Unlike a successful acquisition, in a fire sale, the buyer’s investment is largely to pay off debts. The investors won’t receive their full investment back.
|
Partial
|
|
Shutdown
|
Company D is a company in distress but shut down. Unlike in the fire sale, no company wants to acquire the company. Maybe some equipment, such as computers and office equipment, can be liquidated, but investors will likely not receive any money.
|
None
|
Compare exit mechanisms, reference scenarios, and expected return levels in a compact table. section 12.1.4
