If you talk about exit strategy so early, you will be questioned on whether you really believe in your own vision

Having an exit strategy for a startup business is like a general that maps for an escape route before forming battle strategy. While it is not completely wrong, it is somewhat less desirable, or at least, not advisable. I will tell you why.

For a start, let us all remember that building a startup is no walk in the park. If we look at the startup businesses that shine today, most provide improvements in our way of life. Unfortunately, even the greatest idea will remain a concept if not implemented. Materialising a concept however, especially an innovative one, is highly challenging. Talk to any successful startup entrepreneurs. They will testify on the challenges and difficulties that they have lived through. Now, imagine if monetary reward is your sole aim. It may simply be insufficient to motivate you through as challenges hit.

Having monetary reward as a motivation is not forbidden. But having it as a sole motivation is not advisable. You need to believe in your own vision. So, if you talk about exit strategy so early, you will be questioned on whether you really believe in your own vision. Because if you do, why are you planning exit strategy so early rather than sticking to own vision and see it to the end?

Sure, there are times when exiting a company that you have built with your heart and sole make perfect sense. I recall the time when one of Indonesia’s prominent entrepreneur, TP Rahmat sold Adira to Danamon. The emotional attachment was unquestionable as the company stands for his father’s name. But without attaching the company to a major bank, Adira’s growth would have been capped.

Also read: Building a successful exit strategy in SEA; why pre-revenue models are bad for listings

Thus, there are times when a founder may decide to sell his or her company to a larger player. The question though, if you believe in your vision, why would you decide to completely exit? Why not swap your ownership in your start-up with some stake in the acquirer and join them to run the division wherein your company is being folded into? That way, you have the chance to charge on and materialize your vision, with even larger resources and capacity.

Of course, by doing so, you are no longer the CEO and founder, but probably as a mere head of division. Most founders may not be able to accept such condition. Ego usually gets in the way. You need to ask yourself if you believe in your vision and passion. Do you believe it enough? So much that they trump your ego? If you do not, why would a potential acquirer believe in your vision?

Let us assume that you have managed to convince a potential acquirer. There remain two caveats.

First, the acquisition price is likely to be well below your initial dream. Everybody wants to build a billion-dollar unicorn. Remember, they are called unicorn because they are rare at best and even factually a mythical creature. In reality, you are likely to get just a fraction of what you initially dream of. Then again, even a twentieth of a unicorn is still US$50 million, a large sum in any account.

Second, you are unlikely to get the whole acquisition price in cash. As discussed above, your acquirer is likely to prefer you to join them. After all, you know your company best. That means, the acquirer is likely to offer some, if not most, of the acquisition value in share swap. If you do not get such offer, maybe you should wonder if you are a good founder. Maybe it is your team that has the capability to deliver, not you. No offense.

From most of the scenarios above, except for the one where you are considered as a less important member of your team, you are actually not exiting. You merely take your company to the next level. Of course, disposing a fraction of your ownership for additional pocket money does not count as exit.

Can IPO be an alternative solution?

Having spent over a decade on Indonesian capital markets, I am surely not one that is against IPO. But before you pursue that path, there are things that you need to know.

Also read: Why considering an exit strategy is not bad — at all

First, after IPO, raising additional capital means more paper-works than when you are still a private entity. You need to fulfill all the regulatory requirements of the stock exchange and capital market supervisory agency.

Second, you are now exposed to market volatility. We all know too well how volatile stock markets can be.

Third, as a public company, you need to be more transparent. That includes exposing some of your initiatives despite being in early stage, posing a risk that competitors come in before you are ready to face the challenge. Not disclosing may cause your investors question your credibility. Either way, you have a dilemma to solve.

Fourth, when stock price surges, unless you are selling, it is merely a paper gain. No matter how high it goes, unless you dispose some ownership, you do not actually see the money. It may enlarge your ego, but not your pocket.

Fifth, most reputable fund managers, even those focusing on Indonesian capital markets, hold less than 100 Indonesian stocks. Regionally mandated fund managers hold less than 30 Indonesian stocks and globally mandated ones hold less than 5, if any. So, if your company is not within the top listed public companies, your shareholder list will be comprised of mere speculators. That will cause a massive swing on your stock price.

The takeaway

At the end, as a founder, exit is not as simple as it seems. It is relatively unfair, and I agree. It seems investors can exit their investments. But as one that put their life, heart and soul into the company, it is much harder for a founder to exit. Of course, all this is just my personal opinion. If you have an innovation that you truly believe in with great passion and you know it is meaningful and scalable, I advise you to go for it because great rewards await. But if you merely chase monetary reward, I advise you to just get a job.

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