Exit Strategies

Putting together exit strategies is just as important as raising capital. The primary objective for companies is to maximize the value of the company before converting it to cash. When accredited investors invest money in a start-up or existing company (private placement offering or foreign direct public offering), they are expecting an anticipated return of their principal and profit. Therefore the company's management team must explain to investors the methods in which the firm will pay back the investor.

One way to reward your stock holders is to buy back their stock at a predetermined date and predetermined price. Typically investors want to realize an annualized rate of return of 12 to 15%. Multiply that amount by the number of years you intend on buying back the stock, add the principal investment and you have an amount. This dollar amount can be a monster. I don't necessary recommend this option unless you have certain events that you anticipate to occur to justify those types of returns. Also, this is a great way to "exit" your shareholders in the event that you wish to take the company completely private (i.e. owned by family).

An initial public offering (IPO), referred simply as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the public for the first time. They are often issued by small companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO the issuer may obtain the assistance of an underwriting firm such as a broker-dealer, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

A "Reverse Merger" is a method by which a private company can go public by merging with a public company. In a reverse merger a private company merges with a public company that usually has no assets or liabilities. The public company in most reverse merger scenarios is usually referred to as a "trading shell company" or a "reporting company". After the reverse merger the private company would retain most of the public companies shares and would be trading under the name of the private company prior to the merger. The board members of the trading shell company would resign and the private company would appoint their own board of directors.

It is always best to seek advise from a qualified securities attorney and a seasoned business consultant to determine which exit strategy is best for your private placement offering.

 

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