It's not uncommon for entrepreneurs to start talking about their exit strategy in detail during one of their first meetings with a VC. While it's generally a good idea to indicate your intention of eventually exiting, VCs do not want to hear that you believe you have figured out the exact timing and buyer. To clarify, VCs like to know that there are potential buyers in the market and that you intend to exit; they don't want to hear that you 'know' who is going to buy you unless you have had serious discussions toward that end with the potential acquiring party.

VCs don't like to hear these speculations for a few reasons.

• First, you should not be too focused on the exit, you should be focused on building a great company. Great companies are often attractive acquisition targets - the exit will take care of itself.
• Second, if there are numerous potential buyers, you seem naïve to think you know who will make the acquisition.
• Third, if there is only one potential buyer for your company (which is rarely the case), that circumstance presents a substantial risk that VCs won't like.

However, if you are asked about who might acquire your company be prepared to answer that question. The best answers not only list a potential acquirers but include rationale for the acquisition and examples of similar purchases made by that company.

My guess is that entrepreneurs describe their detailed exit plan because they know VCs want to back entrepreneurs that intend to develop an exit strategy for their company. However, in your first round of fundraising, it's generally better to say something more open ended such as, "I hope to be acquired in 3-5 years by one of the many potential buyers, but am focused on building a great company that will have lots of options."

Comments

[Sean Murphy]

Let me re-write your article in reverse and see it it works as well or better. By reverse I mean exchanging VC and entrepreneur.
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Advice to VC's : Don't Focus on the Exit

It's not uncommon for VC's to start talking about exit strategy in detail during one of their first meetings with an entrepreneur. While VC's like entrepreneurs to respond in a way that communicates their intent to pay the investment back, entrepreneurs do not want to hear that the VC believes that he has figured out the exact timing and buyer. To clarify, entrepreneurs like to know that there are potential buyers in the market and that VC will help them get the best value; they don't want to hear that the VC 'knows' who is going to buy the entrepreneur's firm.

Entrepreneurs don't like to hear these speculations for a few reasons.

o First, VC's should not be too focused on the exit, they should be focused on helping the entrepreneur build a great company. Great companies are often attractive acquisition targets - the exit will take care of itself.
o Second, if there are numerous potential buyers, the VC will seem like he is trying to do a quick flip not to get the most value.
o Third, if the VC represents that there is only one potential buyer (which is rarely the case), that would present a substantial risk that entrepreneurs won't like.

However, if the entrepreneur asks you about who might acquire the company, be prepared to answer that question. The best answers not only list potential acquirers but include rationale for the acquisition and examples of similar purchases made by that company.

My guess is that VC's describe their detailed exit plan because they know entrepreneurs want VC's who will help them to make a lot of money. However, in the first round of fundraising, it's generally better to say something more open ended such as, "We hope to see you acquired in 3-5 years by one of the many potential buyers, but we are focused on helping you build a great company that will have lots of options."

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I think this might serve as another good post in advising VC's. Perhaps there is a synthesis of the two that's more useful than either.

[Mark Davis]

Thanks Sean. I think this is a worthwhile addition to this post.

--Mark