Part 20/20 - Twenty Questions You Will Be Asked By Venture Capitalists (If You Get That Far)

By Laurence K. Hayward

This is the last part of a twenty part series on this topic.

20. What are the probable exit scenarios?

In most cases, VCs are managing other people’s money. The fund(s) they manage comprise investments from a variety of institutions (e.g. pension funds) that put a percentage of their investments into the high­risk/high­return private equity asset class. These institutions obtain diversity by investing in a fund (or funds) that contains a portfolio of companies, managed by private equity investors like VCs. The VC’s responsibility is to acquire and manage the portfolio, and ultimately to generate a return for their investors (the institutions). In order to generate those returns, VCs need liquidity from the assets (companies) in their portfolio, and they most typically achieve this when portfolio companies are subject to a merger, acquisition, buyout or public offering. VCs need to know how they're going to cash in on their investment, hopefully at an ROI of 50 percent or more ­­so the exit strategy after all is where the rubber meets the road. The VCs are not content to “figure out later” how they will exit their investments and generate returns. Before they invest in a company, they like to know the various exit options. As an entrepreneur, VCs will ask you about who would have interest in acquiring your business and why. Be both realistic (particularly on timing and valuation) and creative regarding merger and acquisition possibilities.

I hope you found the preceding series valuable. I welcome your thoughts on this content as well as your experiences raising private equity. Please feel free to contact me with questions and comments.

Laurence K. Hayward 

Founder/Partner 

VentureLab Inc.

lkh@theventurelab.com 

www.theventurelab.com