Welcome to the Dreamit Dose. Often many early stage investors
may ask you during a first meeting, "So what's your exit strategy?"
You may think this question is irrelevant
or that no one's going to ask you at this point,
but you're probably going to get this question the majority of the time.
So how do you best answer it? Let's dive in.
So, when does this come up?
You're meeting with an early stage investor.
Maybe it's an angel investor or a seed stage investor.
And you're getting towards the end of the discussion of your deck,
and they'll pop the question. "So, what's the exit strategy here?
Who's going to acquire this and why?"
Sometimes we've even seen startups bring this up proactively.
Do not do that! We'll talk more about that later.
What's the reality?
The reality for startups that are raising venture and survive
is that the majority are going to get acquired
and founders and investors are looking for some type of a liquidity event.
And investors do want to understand who possible acquirers are.
But in that first early meeting, that's not the time to discuss it.
Push it off.
By the way, what's my favorite answer ever to this question?
A friend of mine, Garret, who lives in the Georgia area
twenty years ago I remember him telling me he was building
this vending machine company and it was doing extremely well.
And I asked him, “Garret what's your exit strategy?”
His answer was, "What are you kidding? This thing is so wildly profitable.
My exit strategy is my will. Why would I ever sell it?"
90% plus of startups we talk to
are not in that situation where they're highly profitable.
So that's not your typical answer. But it was hilarious.
But anyway, be super careful how you answer this.
Are you that smart this early on? You're a year or two into your startup
and you're often on a 5, 7, 10 year journey and you know how it's going to end?
You know what your exit strategy is? Don't talk about it.
Investors want missionaries, not mercenaries.
If they see you're looking for a quick exit and you're in it just for the cash,
a lot of times they won't invest because they know that startups are hard.
They're really difficult. They want to know when the going gets tough,
that the tough aren't going to get going.
They're going to stay with it, and stick with it, and see it through.
So they want to make sure you're on a bigger mission here
and that you're not just looking for the fast exit
and you want to build something that gets big and lasts.
Now it could be a trick question.
In a recent episode of Dreamit Live, we had Ron Gula on,
a great investor from Gulatech Adventures.
He said, "Sometimes he’ll ask an entrepreneur. Look if you're raising 2 million on an 8 million pre.
What if I just wrote you a check today for 8 million dollars?"
And he'll stop and see how they answer that.
Now sometimes he might actually buy the whole thing
and build it into something bigger.
But in some ways he may be doing a test to see if you are playing small ball.
Would you exit for 8 million dollars?
Because he wants to know that you want to build something big.
So how should you answer that big tough question...
What's your exit strategy? My advice, what I would say is,
I'm not sure. I'm building a company to dominate.
I want to suck the air out of the room. I want to take the air out of my industry.
I want to own my niche. I want to build something really large
and substantial and own the market.
And if I'm doing that, good things should happen.
Sure there's natural acquirers, and we can chat on that if you really want to.
But that's not what I'm focused on now.
I'm looking for an investor who wants to partner with me
and really build something big and dominating.
And if I do that, the right opportunities are going to come along.
I'll deal with those later. But I'm not focusing on that today.
Look, of course an investor has this in the back of their mind. It's their job.
They're wondering where's the value creation here?
Why is someone going to buy it? Who is going to buy it?
That's part of their job. We just find entrepreneurs talk about it too early
and sometimes make the huge mistake of bringing it up proactively.
They start talking about, instead of their vision, they say,
"Well now let me tell you about my exit strategy."
Who asked you about your exit strategy?
We’ve talked about this in other Dreamit Doses and I'll say it again.
Your vision doesn't equal your exit strategy. Have a big vision.
Paul Graham talks about have a BHAG. What's your Big, Hairy, Audacious goal?
You want to go after that.
Be cash efficient, stay focused, delight your customer, and dominate.
You do all of that and good things are gonna happen.
That's eventually where exit strategy leads to.
That's it. That's how you answer the question...
What's your exit strategy?
Remember angel and seed investors are going to ask this.
It may be a test. They're often looking for missionaries, not mercenaries.
They're not looking for the quick kill,
they're looking for entrepreneurs that are in it for the long haul.
Talk about your big vision. Focus on winning and dominating the market.
And if that's happening, you have a lot of options.
Hit your vision and hit it hard.
That's your Dream Dose in about five minutes.
Please leave your questions in the comments section,
and make sure to catch our weekly live show, Dreamit Live,
with interesting guests and live Q&A.
Please make sure to follow and subscribe. We have a lot more coming.
Really looking forward to answering your questions in the comments section.
See you next time.