Recently I was talking to an entrepreneur that was working on raising money for his startup. After asking the normal questions including “why do you want to raise money”, he volunteered something I don’t hear too often: I want to raise money to bring on a partner that will position the business for an exit in a few years. The idea is that raising money will act as a forcing function to drive towards an exit.
Here are a few questions to think through:
- Why not sell now? What additional value will be gained raising money?
- What specifically is desired in a capital partner?
- What’s the ideal timeline? What milestones need to be hit?
- Are there any market dynamics at work that might improve or decline over the next few years?
- How many more rounds of capital, and dilution, will be required to achieve the desired exit?
Planning for an exit in a timeframe is never really doable unless the business is profitable with enough scale to know that there’s an exit based on an EBITDA multiple to a private equity firm or other financial buyer. Most startups want a buyer that pays up based on growth potential, and those are nearly impossible to plan for confidently. Raising money does create more pressure to eventually find an exit, but isn’t a guarantee.
What else? What are some more thoughts on raising money as a forcing function to drive towards an exit?
David Cummings on Startups 
Interesting perspective here, David. As a follow up, one could argue that the right professional venture investors can help significantly with an exit as they have strong contacts with potential buyers, they play “the game” on a daily basis and there is an element of “you scratch my back, I scratch yours” on deals once you are in the exclusive VC-Buyer network. Of course, the company has to have financial performance either in strong year-over-year revenue growth or profitability, but I do think bringing in venture money (and all that comes with it) as a exit accelerator makes some sense.