What Is an Exit Strategy?
An exit strategy is a plan for how founders and investors will eventually turn their ownership into value, such as through a sale, merger or public offering.
How it works
An exit is an event where owners can cash out some or all of their stake. The main routes are an acquisition (another company buys yours), an initial public offering (shares are sold on a public stock exchange), a management or private buyout, or a later sale of shares to another investor. Some founders instead choose to keep running the company for profit and pay themselves dividends, which is not strictly an exit.
Exit strategy is part of how you build the business. Venture investors typically expect a path to a large outcome, while a profitable small company may have a different plan.
Example
For example, a founder owns 30 percent of a company that is acquired for $10,000,000. Before debts, fees, taxes and any investor preferences, 30 percent would be $3,000,000. In practice, investors with liquidation preferences may take their money first, so the founder's actual payout can be lower.
Why founders care
Your goals shape the money you should take. Venture capital generally needs a big exit, so taking it commits you to that path. If you want a steady, profitable business you control, bootstrapping may fit better. Talk about the exit with co-founders early, since mismatched goals cause conflict later.
Common mistakes
- Taking venture money without wanting a large exit.
- Having no shared view among co-founders about selling.
- Ignoring liquidation preferences when estimating a payout.
Frequently asked questions
What are the main types of startup exit?
An acquisition, an initial public offering, or a buyout. Some companies also give investors liquidity through secondary share sales. Most startups do not reach any of them, and some close down.
Do I need an exit strategy in a business plan?
Investors often ask about it, so a short, realistic view is useful. For a bootstrapped company it may simply describe how you expect to be paid, whether by profit, sale or succession.
Related terms
Go deeper
- Bootstrapping vs Venture Capital: How to Choose GuideBootstrapping vs venture capital explained: how each works, what you give up, worked examples, and how to decide which path fits your startup.
- How to Write a Business Plan: Template and Steps GuideHow to write a business plan for a startup: a section-by-section template, a lean one-page version, and what changes when the reader is an investor or a bank.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.