This is from Australia but contains a number of statements that are true on a global basis:
- Most exits over the next five years for start-ups are expected to be trade sales
- Venture capital firms or investors investing in the start-up space can effectively start earlier and exit earlier because start-ups require less capital to get started than ever before
- Most businesses are not suitable for venture capital - only 0.5% of new companies convert into a business of sufficient scale to list on a stock exchange or execute a trade sale
In FirstCapital's experience, companies tend to get a much better result in terms of exit when their potential buyers know who they are and why they are valuable to them. If the likely exit event is a trade sale, therefore, we would advise companies to start thinking about who will buy them, and making themselves relevant to their buyer community. An exit is a process, rarely an event.
“Most of the activity that we expect to see happening over the next five years in the start-up space is trade sales to incumbents who are looking to buy because they want to add new businesses, or for defensive reasons, or to do acquihires,” Colless says. “So venture capital firms or investors investing in the start-up space can effectively start earlier and exit earlier.”