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Identify and discuss the various exit strategies that investors may use and the implications for commercialization - Essay Example

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Identify and discuss the various exit strategies that investors may use and the implications for commercialization Introduction A venture capitalist is an institution that would come forward to invest in companies or projects that have just started and need a seed capital as it cannot go to the public for collection of funds because the scale of operation is not so big…
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Identify and discuss the various exit strategies that investors may use and the implications for commercialization
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Download file to see previous pages In most of the cases, these kinds of investors would look for an investment opportunity for shorter terms like 3-7 years. The Angel investors are also another category who would want a high return from their investments but they might stick to their investments for longer periods of time. However, both of these categories would look for exit strategies that they may have in front of them. Initial Public Offering A company can go to the public to raise funds when it is big enough to guarantee its credibility and the people would be interested to buy the shares of the company through registered stock exchanges. This would enable the investors get their money back almost instantaneously as soon as the company collects the money. Most of the investors believe that the startups where they are investing in would have the capacity to go to public within 5 years of their inception. But this may not always be feasible because a company needs time to grow and sustain. Thus the venture capitalists have to look for more practicable strategies. Acquisition The company can sell itself outright to a bigger company or individual who would have complete ownership and hence the venture capitalist would be able to get their investment back. The investor would also be able to negotiate the management contract in that case. However there is a possibility that the investor would lose his identity in the company. Management Buy Out In case of a buy out any one or two persons of the management may buy out the stakes of the company completely. In this case the persons who want to sell out the shares of the company would get his investment and return back and the other members would retain the shares of the company (Roberts, 39). The company has an advantage in a way that it can retain a part of the present set of management. Mergers The start-up can join hands with an existing company and can operate under a single name. In such a situation the investor would get some amount of cash and also little amount of stake in the new company. However, the company would no longer be within the control as before. Sale of the Company In case the company is sold to some other entity completely the entire management will change but the investor would get full refund of his money and return at the moment of the purchase. Above mentioned ways are some of the options opened for an investor to exit after few years of initial investment in a company, though the final motives of the investor will drive him to the way that would be most appropriate for him. Implications for Commercialization The commercialization of a new product or idea needs the support of the investors both financially as well as in terms of managerial support. Venture capitalists have an active role in this regard. The commercialization requires a lot of investment in resources, marketing the initial launch, advertisement and the brand building. It exerts a greater amount of pressure on the investors as they would have to spend a lot on an investment that may not guarantee them sufficient return (Sahlman, 496). Thus it is important for the venture capitalists to weigh the alternatives and should look for ample scope for exit strategies that would allow them with the flexibility to move out of their ...Download file to see next pagesRead More
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