Is IPO an exit strategy

Exit strategies for successful start-ups

10 examples of successful exits in Germany

In Germany, too, there are now a number of larger exits by former start-ups. We have put together 10 examples.

360TDeutsche Börse AG725 million euros
BRAIN AGIPO31.5 million euros
JamedaBurda Digital46.8 million euros
pizza.deDelivery hero290 million euros (estimate)
runtasticAdidas AG220 million euros
TeamviewerPermira$ 1.1 billion
TrivagoIPO$ 212 million
VerivoxProSiebenSat 1210 million euros
Windeln.deIPO21 million euros
ZalandoIPO526 million euros

First the check: Ready for an exit?

Many founders dream of it, but only a few manage: to achieve a successful exit. Whether you can only dream about it or should seriously think about possible exit strategies depends on various factors.

Whether your own start-up is "exit-suitable" or "exit-ready" can be assessed relatively quickly using the following seven questions.

  1. Does the business model also work without a founder?
  2. Is the time right to sell?
  3. How coherent is the investment case?
  4. How well is the exit prepared?
  5. How many shares should be sold?
  6. Why do the founders want out?
  7. Do you also need fresh capital?

1. Does the business model work without a founder?

The founding team is almost always the decisive factor for the success of a start-up. In this respect, every potential buyer naturally also asks whether the company can continue on its successful course after the potential takeover, even if the founders are no longer on board. If a successful continuation without a founder is not possible or at least questionable, it will be very difficult to realize an exit.

2. Is the time right to sell?

Determining the right time to exit is not that easy. On the one hand, the company should be of a certain size so that it is suitable for potential buyers. On the other hand, the start-up should have further growth potential, as this factor is very important for the company valuation.

One should also bear in mind that an exit process can easily take between six and twelve months and does not necessarily have to lead to success. During this time, day-to-day business is usually idle, as the founding team is busy with the exit process and therefore cannot concentrate fully on the operative business. For this reason, it is usually advisable not to seek an exit in the fastest growing phase of the company, as substantial company value could be destroyed that quickly.

3. How coherent is the investment case?

Viewed objectively, the founders should ask themselves whether and for whom the start-up could be of interest (we have listed a few possible buyers below). In addition to the industry and company size, the potential for further growth, the scalability and sustainability of the business model, possibly the strategic fit and the shareholder structure are also important. If there is one or more question marks about one of these factors, possible solutions should already be worked out before the initial discussion with the potential buyer.

4. How well is the exit prepared?

If you want to achieve a successful exit, you should prepare as best as possible for the exit process. A convincing company presentation should be available for the initial meeting and the owners should also have given sufficient thought to the company's value. If you have approached a potential buyer and he decides to examine the potential investment, he will want to inspect numerous documents as part of the due diligence after signing the NDA.

These documents - such as the partnership agreement, business plans, financial plans, business evaluations, contracts with important customers, etc. - should already be available when the due diligence process starts. The potential buyer usually asks for a financial model on the basis of which he can make his company valuation. Involve consultants and lawyers in advance (i.e. set up your own team)

5. How many shares should be sold?

In the vast majority of cases, a start-up is not directly sold in its entirety. Therefore, one should discuss openly within the group of shareholders who would like to give up how many shares. In the first step, investors usually prefer a blocking minority of 25.1%, and then possibly the majority. Another essential question is also important in this context.

6. Why do the founders want out?

The founding team must have a clear answer to this question. If the founder's answer is not convincing, then doubts should quickly arise on the part of a potential buyer.

One argument that founders often make is that to be a successful founder you don't necessarily have to be a good manager. Founding teams often find it difficult when, after the major growth phase, the task suddenly comes to solidly managing the established company and keeping it on course for growth. Other arguments could also be private circumstances or strategic goals (e.g. focus on a new business model). A falling out among the shareholders is usually a reason for an investor to keep his hands off the start-up.

7. Is additional fresh capital required?

Most start-ups need continuous capital in order to be able to finance further company growth. A capital increase offers the founding team the chance to achieve a partial exit. In the financing round, not only is fresh capital raised, but existing shareholders also sell part of their shares.

When all questions have been clarified and conclusive answers have been worked out, if necessary, the planning of the exit begins. The question of who you want to sell to is particularly important. The following exit strategies are possible.

The five exit strategies

The five strategies for achieving the most successful exit possible, which we will examine in more detail below, are:

  1. Corporate Buyer
  2. Trade sale
  3. Leveraged buyout
  4. IPO
  5. Merger

Sale to a strategic investor (corporate buyer)

The "corporate start-up culture" in Germany is clearly increasing - in addition to their own incubators and accelerator programs, many larger corporations also have a specialized corporate unit that takes care of investments and takeovers of start-ups As far as such a corporate buyer is concerned, one should check the "strategic fit" beforehand.

The question is whether your own company fits the strategy of the large corporation or whether you occupy a business area with your own start-up that is not yet covered by the group but is considered attractive. With regard to a corporate buyer, it is important to know that a strategic investor is usually interested in taking over 100% of the start-up in the future. It is therefore of great importance that all existing shareholders stand behind this exit option.

Exit via trade sale (private equity)

Selling to an institutional investor - such as a private equity investor - is another important exit option. Most institutional investors invest through a corresponding fund, each of which pursues a specific investment strategy.

Before deciding to approach private equity investor XY, you should find out exactly what the investment vehicle is. The decisive factor is whether your own company fits into the investment strategy of the respective fund. In this regard, criteria such as the industry, the company phase and the level of participation are particularly relevant.

In practice, it is advisable to prepare the sales process together with an experienced consultant / team, e.g. from a specialized investment bank - professional investors should be approached professionally. In addition to a realistic company valuation, a convincing financial model and all other due diligence documents should be available so that the sales process can take place efficiently.

The Deutsche Börse Venture Network offers access to many national and international institutional investors.

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Exit through a leveraged buyout (LBO)

If there is already a professional investor among the shareholders and the founding team is looking for an exit, the company shares - if there is interest - can also be sold to the existing investor.

This can be done, for example, via a leveraged buy-out, in which the investor buys out the founding team with the help of outside capital. For this, however, the company should have already reached a corporate phase in which positive cash flows are generated. From these, the buyer can then pay interest and repayment for the loan taken out.

If you want to sell your own company through an LBO to an existing owner or an institutional investor specializing in LBO, you should align the company as part of corporate management so that a positive cash fow is generated (i.e. less investing in further company growth) .

Exit by going public (IPO)

The ideal route to an exit is probably an IPO. However, one must realistically admit that an Initial Public Offering (IPO) is only possible for very successful start-ups. In addition, an IPO is often not a classic exit, since the existing shareholders usually only sell part of their shares, if at all, in the course of the IPO.

An IPO has to be carefully planned and prepared and therefore usually takes much longer than a trade sale. We have explained in more detail how an IPO works here.

For a successful exit through an IPO, it is important to select suitable partners (lawyers, investment banks, etc.), the appropriate stock market segment and a convincing presentation to investors. In addition, factors such as a realistic company valuation, the easy comprehensibility of the business model and well-functioning corporate communication are also decisive.

We recommend starting-ups considering going public to find out more about the Deutsche Börse Venture Network.

Merger with a competitor

A rather unconventional way of an exit is in the form of a merger. For example, if the founding team of company A wants to withdraw from operational management, merging with another company may be an option. However, a merger only makes sense if possible synergy effects can be used.

In addition, the shareholders of companies A and B will receive new shares in the merged company C - in this respect, no real exit has yet been achieved. However, if the founders of company A can withdraw from operational management (if the management of company B would like to continue to run the new company) and sell their shares in the new company, a successful exit is possible.

And then there are these two options ...

In addition to the exit options mentioned, other exit strategies are also conceivable.

A hidden exit is possible, for example, through high distributions to the founders in the form of high salaries and / or bonuses. However, this approach is not advisable in practice, as it increasingly deprives the company of its substance. In addition, this is only possible in very profitable companies and such behavior often leads to problems within the group of shareholders.

Presumably occurs more often silent exit by a liquidation decided by the shareholders. This quasi exit option can then be considered if the great entrepreneurial success has not materialized, but the company has nevertheless created assets that could be distributed among the shareholders if the company closed down. This possibility for a "quasi exit" only makes sense if the shareholders decide that no other exit option is possible and one no longer wants to continue the company.

Conclusion: build it up, make it big, sell it?

Even with the issue of exit, it is like so often in life - many roads lead to Rome. However, the following applies to all start-ups: regardless of whether you want to sell your company successfully to a corporate investor, want to achieve an exit through a trade sale to a private equity fund, or whether you are one of the few who can achieve a successful exit by going public : Optimal preparation and professional implementation of the sales process always form the basis for a successful deal.

Nevertheless, the road to a successful exit is usually rocky and many start-ups will usually have to make several attempts before they can sign the sales contract. It should be taken into account in advance that the operational business cannot be pushed forward quite as strongly during this time. A successful exit is always possible.

Author: Für-Grü editors

As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Grü for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Grü, he advised listed companies in the field of financial market communication.