The different funding options that are available for an enterprise at the different venture stages of its lifespan. Is an exi

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1. Exit Strategy1 In this last section of Topic 2 we will gain a general overview of an exit strategy. After having looked at the various funding options for your enterprise, we also must think of what is the best exit strategy for you – either as an investor or as an entrepreneur; considering that you may be wearing two hats – and what that means for the investor or the enterprise. What Is an Exit Strategy? So what is an exit strategy and why is it important?

An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist, or business owner to liquidate a position in a financial asset or dispose of tangible business assets once predetermined criteria for either has been met or exceeded.

An exit strategy may be executed to exit a non-performing investment or close an unprofitable business. In this case, the purpose of the exit strategy is to limit losses.

An exit strategy may also be executed when an investment or business venture has met its profit objective. For instance, an angel investor in a startup company may plan an exit strategy through an initial public offering (IPO). This means that we will issue shares and offer them in an exchange, typically the London Stock Exchange, New York Stock exchange or similar. What it means is, that the company is no longer private but the peoples (public) will own shares of your company. Can you think of famous publicly listed companies? – Tesla, Apple, Microsoft, Facebook etc. are famous publicly listed companies which started in a garage in the backyard of a garden!

Other reasons for executing an exit strategy may include a significant change in market conditions due to a catastrophic event; legal reasons, such as estate planning, liability lawsuits or a divorce; or for the simple reason that a business owner/investor is retiring and wants to cash out.

Business exit strategies should not be confused with trading exit strategies used in securities markets.

1 https://www.investopedia.com/terms/e/exitstrategy.asp

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KEY TAKEAWAYS

• An exit strategy, broadly, is a conscious plan to dispose of an investment in a business venture or financial asset.

• Business exit strategies include IPOs, acquisitions, or buy-outs but may also include strategic default or bankruptcy to exit a failing company.

• Trading exit strategies focus on stop-loss efforts to prevent downside losses and take-profit orders to cash out of winning trades.

Understanding Exit Strategies An effective exit strategy should be planned for every positive and negative contingency regardless of the type of investment, trade, or business venture. This planning should be an integral part of determining the risk associated with the investment, trade, or business venture.

A business exit strategy is an entrepreneur's strategic plan to sell their ownership in a company to investors or another company. An exit strategy gives a business owner a way to reduce or liquidate their stake in a business and, if the business is successful, make a substantial profit.

If the business is not successful, an exit strategy (or "exit plan") enables the entrepreneur to limit losses. An exit strategy may also be used by an investor such as a venture capitalist to prepare for a cash-out of an investment.

For traders and investors, exit strategies and other money management techniques can greatly enhance their trading by eliminating emotion and reducing risk. Before entering a trade, an investor is advised to set a point at which they will sell for a loss and a point at which they will sell for a gain.

Money management is one of the most important (and least understood) aspects of trading. Many traders, for instance, enter a trade without an exit strategy and are often more likely to take premature profits or, worse, run losses. Traders should understand the exits that are available to them and create an exit strategy that will minimize losses and lock in profits.

Exit Strategies for a Business Venture In the case of a startup business, successful entrepreneurs plan for a comprehensive exit strategy in case business operations do not meet predetermined milestones.

If cash flow draws down to a point where business operations are no longer sustainable and an external capital infusion is no longer feasible to maintain operations, a planned termination of operations and a liquidation of all assets are sometimes the best options to limit any further losses.

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Most venture capitalists insist that a carefully planned exit strategy be included in a business plan before committing any capital. Business owners or investors may also choose to exit if a lucrative offer for the business is tendered by another party.

Ideally, an entrepreneur will develop an exit strategy in their initial business plan before launching the business. The choice of exit plan will influence business development decisions. Common types of exit strategies include initial public offerings (IPO), strategic acquisitions, and management buy-outs (MBO). An MBO means that the existing management buys-out the shareholders and continues to run the company privately and either finances the takeover from their own personal wealth, through bank loans or by bringing in another cornerstone investor which can be a private individual, a foundation or a Venture Capital or Private Equity Fund.

The difference between a Private Equity Fund and a Public Equity Fund is that the private equity fund is an asset manager that manages private money whereas a public equity fund is an asset manager that manages public money (typically from governments) that invests into private firms. Famous Public Equity Funds are the Qatar Investment Fund who invests in all sorts of businesses and Industries such as car, luxury brands and even Football Clubs.

The exit strategy that an entrepreneur chooses depends on many factors such as how much control or involvement the entrepreneur wants to retain in the business, whether they want the company to continue to be operated in the same way, or if they are willing to see it change going forward. The entrepreneur will want to be paid a fair price for their ownership share.

A strategic acquisition, for example, will relieve the founder of their ownership responsibilities, but will also mean giving up control. IPOs are often considered the ultimate exit strategy since they are associated with prestige and high payoffs. Contrastingly, bankruptcy is seen as the least desirable way to exit a business.

A key aspect of an exit strategy is business valuation, and there are specialists that can help business owners (and buyers) examine a company's financials to determine a fair value. There are also transition managers whose role is to assist sellers with their business exit strategies.

Exit Strategies for a Trade When trading securities, whether for long-term investments or intraday trades, it is imperative that exit strategies for both the profit and loss sides of a trade be planned and diligently executed. All exit trades should be placed immediately after a position is taken. For a trade that meets its profit target, it could immediately be liquidated or a trailing stop could be employed in an attempt to extract more profit.

Under no circumstances should a winning trade be allowed to become a losing trade. For losing trades, an investor should predetermine an acceptable loss amount and adhere to a protective stop-loss.

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In the context of trading, exit strategies are extremely important because they assist traders in overcoming emotion when trading. When a trade reaches its target price, many traders become greedy and hesitate to exit for the sake of gaining more profit, which ultimately turns winning trades into losing trades. When losing trades reach their stop-loss, fear creeps in, and traders hesitate to exit losing trades causing even greater losses.

There are two ways to exit a trade: by taking a loss or by making a gain. Traders use the terms take-profit and stop-loss orders to refer to the type of exit being made. Sometimes these terms are abbreviated as "T/P" and "S/L" by traders.

Stop-losses, or stops, are orders placed with a broker to sell equities automatically at a certain point or price. When this point is reached, the stop-loss will immediately be converted into a market order to sell. These can help minimize losses if the market moves quickly against an investor.

2. Exit options for startups and investors2 Startup acquisitions The main exit strategy for startups is to sell the company to a bigger one for a profit. The same goes for investors. The buyer takes over the startup using cash or stock as a compensation, and key executives and employees from the startup often stay at the company for a period of time in order to be able to cash out and vest their stock. Exits provide capital to startup investors, which can then return the money to their limited partners (in the case of Venture Capitalists) or to the investors themselves (in the case of business angels). Startup acquisitions are much more frequent in the US than in Europe, but lately there’s been a significant surge in the number of European acquisitions. A different type of acquisition that is very common in Silicon Valley is acquihires (acquisition + hiring). In this case the buyer is not so much interested in the product as it is in the team, the talent. Acquihires often lead to the closure of the products and services that have been acquired and employees end up being transferred to a company usually receive significant hiring bonuses. Acquihires tend to happen at an earlier stage in comparison to big startup acquisitions, which means that they often provide less capital to business angels and Venture Capitalists.

2 https://startupxplore.com/en/blog/exit-strategies-for-startups-and-investors/

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Let’s float in the stock market: IPO as an exit strategy As we’ve mentioned before, there comes a time for mature and established technology companies where raising more capital from VCs or private equity firms is no longer an option. So, what comes next? An IPO. As explained in the earlier part of this paper, IPO stands for ‘initial public offering’ and it basically means that a company starts floating on a stock market, selling a significant number of their shares in the process to institutional and non-institutional investors. These large companies are that VCs dream of, as they often provide large sums of capital to all parts involved (founders, early employees and investors). For a long time the NASDAQ and Wall Street have been the main markets for European startups looking to IPO. However, in recent times companies such as eDreams Odigeo, Zalando, or Rocket Internet have chosen the Madrid, Frankfurt or London stock exchanges to go public. An interested trend in the startup world when it comes to going public is that more and more companies are taking longer to IPO. This is a consequence of the high amount of capital available in the startup market from Venture Capitalists, private equity firms and other investment institutions. Mergers & Acquisitions Also commonly known as M&As, these transactions usually imply a merging with a similar and larger company. This type of exit is often chosen by big companies that are looking for complimentary skills in the market, and buying a smaller startup is a better way to develop a product than creating it in-house. M&As are less common than IPOs and straight acquisitions; in the first half of 2014 there were only 4 mergers and acquisitions in Europe. Not selling a startup: milking the cow In the same way that not every startup needs to raise money from VCs and business angels (bootstrapping is a viable alternative), not every startup needs to sell itself to a bigger company to provide a return to founders, employees and investors. Companies that are able to establish a solid business model and scale might choose to stay independent and reinvest the profits in the company. Part of those profits can also be distributed amongst investors as a dividend, providing liquidity to outside partners while avoiding the public markets and the obligations that come with it. 3. The big question: when is the right time to exit? This is a question that i soften asked at conferences and private meetings between investors and startups. When should I sell my company, When is the right time to look for buyers? As an Investor, when should I start looking for a return on my investment?

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And the truth is that there is no universal answer for all of the above. Startups want to sell for as much money as possible (so do investors) and buyers want to spend as little as possible, so both parties need to find a balance. Common sense says that for startups to maximize their selling price they should look for an exit when their growth rates are high instead of when they’re very profitable. However, as Business Insider recently explained “lower-valued startups take less time to scale and less VC money to fuel, which means founders will likely own higher percentages of their companies when they sell”. This implies that these founders might be better off selling for €20 million when they own a big chunk of the startup instead of waiting for a €200 million price tag, as by then they might only own a small percentage of the stock. Each entrepreneur and investor should consider the circumstances of their ventures and make a decision based on that. There’s no secret formula, but what’s for certain is that entrepreneurs and investors, sooner or later, will look for an exit.

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Vision, Mission, Values In this overview we are going to spend some time to dive into the Vision, Mission, Values statement of a firm, and discuss why it is important for an organization. 1 Definition The vision, mission, and values statements form the foundation for all activities in an organization. The vision statement describes what the organization will become in the future. It is a broad and inspirational statement intended to engender support from stakeholders. A declaration that informs the customers and staff of a business about the firm's top priorities and what its core beliefs are. Companies often use a value statement to help them identify with and connect to targeted consumers, as well as to remind employees about its priorities and goals (WebFinance In, 2020) 2. 7 Steps to Writing a Vision, Mission and Values Statement1 How do you actually build a vision, mission and values statement as an organization and what are the key drivers that the entrepreneur must observe? Here is a guideline:

1. Gather Board Level Leadership If you don’t have a formal board, pull together an advisory team. If you are a small business, pull in anyone who has helped you get you to where you are in an advisory capacity. Writing a vision, mission, and values statement should be an exercise that is done at the board level – with some senior-level employees.

1 https://thethrivingsmallbusiness.com/how-to-write-a-vision-mission-values-statement/

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This can be done in a retreat setting such as a conference room of a hotel or the back room of a restaurant. The goal is to create an environment that is insulated from distractions and interruptions.

2. Identify an Objective Facilitator If the organization has strong leadership, there may be someone at the board level who can facilitate the visioning session. Whether the facilitator is a member of the staff or is contracted through a third party, the facilitators’ role is to help drive the process without influencing the content. An experienced facilitator will know how to do this.

3. Dream As a Group A visioning session is a time for dreaming. Work with flip charts to get the creative juices going and provide colorful visuals that help spark thoughts and ideas. Divide into groups of 3-4 people, provide each group with a flip chart, and have them discuss and answer the following questions: Note: There should be simultaneous groups going on at the same time if there is more than one group.

• Who are we? • What do we want this organization to look like in 5, 10 years? • Where do we want to be 1, 5, 10 years down the road? • Create a headline for a newspaper about the organization ten • years from now. What would it say?

This exercise should take 20-30 minutes.

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4. Share Ideas

After 30 minutes, ask all groups to share the thoughts and ideas they came up with. Use the larger group to pick the best thoughts and ideas from each of the smaller groups. Write the collective thoughts and words on a new flipchart. Ask all participants to add, subtract, and formalize the sentence structure of the statement.

5. Examine the Statement After the group drafts a couple of sentences, read them out loud to the entire group again. Next, test the sentences to see if the entire group agrees that the statement is reflective of the organization and describes an ideal future state. Make sure the statement is descriptive enough and is measurable to determine progress toward the vision.

6. Clarify the Mission After the vision statement is written, go through a similar exercise to define the organization’s mission. Remember a mission statement describes “why” the organization exists. Vision and mission statements should be used for decision making so, it should reflect the importance of what the business is trying to

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accomplish. Break into small groups again and spend another 20-30 minutes brainstorming words that describe why the organization exists. Once all the groups have their ideas down, ask them to present to all of the other groups. Using a flipchart, combine all of the ideas and as a group, try to create a short phrase that is descriptive of why the organization exists. The phrase will get moulded by the group and after it is in a final state, read it out loud one last time, so the entire group agrees that it is reflective of why the organization exists.

7. Define Organizational Values Once a vision and mission statement is drafted, break into groups once again and allow another 20 minutes or so to come up with a list of values. These will become the shared values that the organization operates by. As the groups come up with their lists, ask them again to present their ideas to the larger group and then combine and agree to one list. The final list should ideally be 5-10 words and should be easy for people to simply memorize. You did it! Now have it printed and displayed in your business so your customers and employees can see what you are trying to accomplish and what your priorities are! Many organizations don’t have a defined vision, mission, and

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values statement because they don’t know how to do it, and the process scares them. However, if you can get the right people in the room, and have a trained facilitator, it can be done in a few short hours. Has your organization come up with a Vision, Mission, and Values statement?

3. The importance of a Vision and Mission statement2 Strategic planning is a key function of an organization’s management that helps to set priorities, allocate resources, and ensure that everyone is working towards common goals and objectives. However, for strategic planning to be effective, there are two important tools that are needed – a vision and a mission statement. These serve as a guide for creating objectives and goals in the organization, thus providing a roadmap that is to be followed by everyone. Unfortunately, despite the importance of vision and mission statements, many organizations do not have them. In other cases,

2 https://www.linkedin.com/pulse/importance-vision-mission-statements-norja-vanderelst

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the two statements are lumped together as one or used interchangeably despite their distinctive differences. This creates a confusion in the organization that makes it harder to achieve the set objectives and goals. Both the vision and mission statements play an important role in the organization. Below is a look at these roles:

1. The vision and mission statements define the purpose of the organization and instil a sense of belonging and identity to the employees. This motivates them to work harder in order to achieve success.

2. The mission statement acts as a “North Star”, where it

provides the direction that is to be followed by the organization while the vision statement provides the goal (or the destination) to be reached by following this direction.

3. The vision and mission statements help to properly align the

resources of an organization towards achieving a successful future.

4. The mission statement provides the organization with a clear

and effective guide for making decisions, while the vision statement ensures that all the decision made are properly aligned with what the organization hopes to achieve.

5. The vision and mission statements provide a focal point that

helps to align everyone with the organization, thus ensuring that everyone is working towards a single purpose. This helps to increase efficiency and productivity in the organization.

The vision and mission statements are important tools of strategic planning, and thus they help to shape the strategy that will be used by an organization to achieve the desired future.

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Conclusion The mission and vision statements are very important, and they can best be described as a compass and destination of the organization respectively. Therefore, every organization should develop clear vision and mission statements, as not doing so would be like going on a journey without knowing the direction you are to follow or the destination. 4. Role Played by Mission and Vision3 Organization mission and vision are critical elements of a company's organizational strategy and serves as the foundation for the establishment of company objectives. Mission and vision statements play critical roles, such as −

• They provide unanimity of purpose to organizations and spell out the context in which the organization operates.

• They communicate the purpose of the organization to stakeholders.

• They specify the direction in which the organization must move to realize the goals in the vision and mission statements.

• They provide the employees with a sense of belonging and identity.

3 https://www.tutorialspoint.com/management_principles/management_principles_mission_vision_values.htm

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5.Values Every organization has a set of values. Sometimes they are written down and sometimes not. Written values help an organization define its culture and belief. Organizations that believe and pledge to a common set of values are united while dealing with issues internal or external. An organization’s values can be defined as the moral guide for its business practices. 5.1 Core Values Every company, big or small, has its core values which forms the basis over which the members of a company make decisions, plan strategies, and interact with each other and their stakeholders. Core values reflect the core behaviors or guiding principles that guide the actions of employees as they execute plans to achieve the mission and vision. • Core values reflect what is important to the organization and

its members.

• Core values are intrinsic – they come from leaders inside of the company.

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• Core values are not necessarily dependent on the type of company or industry and may vary widely, even among organizations that do similar types of work.

For many companies, adherence to their core values is a goal, not a reality. It is often said that companies that abandon their core values may not perform as well as those that adhere to them.

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In this overview we are going to discuss what are the funding options for the different type of businesses and enterprises: 1. Start up Funding1

According to a recent study, over 94% of new businesses fail during first year of operation. Lack of funding turns to be one of the common reasons. Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to revenue generating business needs a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves asking – How do I finance my startup? Now, when would you require funding depends largely on the nature and type of the business. But once you have realized the need for fund raising, below are some of the different sources of finance available. Here is a comprehensive guide that lists 10 funding options for startups that will help you raise capital for your business. Some of these funding options are for Indian business, however, similar alternatives are available in different countries.

1) Bootstrapping your startup business: Self-funding, also known as bootstrapping, is an effective way of startup financing, specially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success. You can invest from your own savings or can get your family and friends to contribute. This will be easy to raise due to less formalities/compliances, plus less costs of raising. In most situations, family and friends are flexible with the interest rate. Self-funding or bootstrapping should be considered as a first funding option because of its advantages. When you have your own money, you are tied to business. On a later stage, investors consider

1 https://www.profitbooks.net/funding-options-to-raise-startup-capital-for-your-business/

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this as a good point. But this is suitable only if the initial requirement is small. Some businesses need money right from the day-1 and for such businesses, bootstrapping may not be a good option. Bootstrapping is also about stretching resources – both financial and otherwise – as far as they can.

2) Crowdfunding As A Funding Option: Crowdfunding is one of the newer ways of funding a startup that has been gaining lot of popularity lately. It’s like taking a loan, pre-order, contribution or investments from more than one person at the same time. This is how crowdfunding works – An entrepreneur will put up a detailed description of his business on a crowdfunding platform. He will mention the goals of his business, plans for making a profit, how much funding he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea. Those giving money will make online pledges with the promise of pre-buying the product or giving a donation. Anyone can contribute money toward helping a business that they really believe in. Why you should consider Crowdfunding as a funding option for your business: The best thing about crowd funding is that it can also generate interest and hence helps in marketing the product alongside financing. It is also a boon if you are not sue if there will be any demand for the product you are working on. This process can cut out professional investors and brokers by putting funding in the hands of common people. It also might attract venture-capital investment down the line if a company has a particularly successful campaign. Also keep in mind that crowdfunding is a competitive place to earn funding, so unless your business is absolutely rock solid and can gain the attention of the average consumers through just a description and some images online, you may not find crowdfunding to work for you in the end.

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Some of the popular crowdfunding sites are Indiegogo, Wishberry, Ketto, Fundlined, Catapooolt, Kickstarter, RocketHub, Dreamfunded, Onevest and GoFundMe

3) Get Angel Investment In Your Startup: Angel investors are individuals with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can also offer mentoring or advice alongside capital. Angel investors have helped to start up many prominent companies, including Google, Yahoo and Alibaba. This alternative form of investing generally occurs in a company’s e

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