Investors need to feel comfortable that they will receive a very positive return on their investment and lenders need to know their risks are limited as well, but they also need to see clear and defined exit strategies in a Business Plan.
The first strategy is always the marketing analysis, marketing plan, executive team and related financial forecasts designed to support a Business Plan that has the pay off your debt or ability to return the equity capital of the investors within three to five years.
For businesses of all sizes, the second strategy is typically the sale of the business or recapitalization in order to raise more capital to expand the business and/or return the original investors’ equity capital.
Thereafter, larger businesses have other alternatives such as going public, reverse mergers, or being an acquisition target.
A company can attempt to grow as aggressively as possible without overstepping available capital limitations and resources. As such, the option of issuing an IPO in the time frame of 24-30 months from initial funding would provide needed capital to reduce any outstanding debt, repay any shareholder obligations and/or original investors’ equity capital, and fuel the growth. The IPO strategy works well for growth through acquisitions since the purchase of the acquisition can be blended with publicly traded stock as well as conserving cash.
There are advantages and disadvantages to a reverse merger with an existing publicly traded shell or operating corporation. With proper due diligence and careful analysis of the existing publicly traded corporation, these types of transactions can be quickly accomplished with significantly reduced legal and accounting costs. A shell corporation can provide nearly instant marketability for investors’ shares and with proper safeguards, can access capital markets unavailable to privately held companies.
As revenues grow and profits increase, a company can become an attractive acquisition target for a larger, well-financed company that is seeking to further exploit the company’s knowledge in the marketplace. The company can become well positioned to continue its role as the marketing and development arm of a larger company. The company could consider this option at any time it was presented, and it could research the trends in the industry regarding this strategy in depth by maintaining that it is following the exact path of development that would make the business attractive to potential industry leaders.
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