While every founder dreams of a billion-dollar exit, the reality is that most startups go bust. Of the ones that do make it, the majority are bought out by larger companies. Smart founders convert entrepreneurial opportunities into ‘early exits’. This gives them the bank balance and breathing room to pursue their next idea – on their way to becoming a serial entrepreneur. Early exits are especially relevant to science and deep-tech entrepreneurs. I explained the underlying reasons in this 2016 talk at the NCL Venture Center in Pune, India.
Exiting-Early-your-B2B-Life-Sciences-Healthcare-Startup
First-time founders sometimes drink Silicon Valley kool-aid without questioning the merit of black-and-white notions such as ‘Missionary versus Mercenary’. The realities of startup life kick in only when they are deep into the valley of death. Hence, I encouraged attendees to look at ‘early exits’ as a real alternative, not a desperate one! I explained how an early exit can be strategically planned to maximize the valuation and odds of a deal. This involves the effective use of value inflection points and early-stage business development.
An expected value approach is at the heart of early exits from entrepreneurial opportunities. At each important milestone, founders assess whether to exit the venture or put in the time, effort, and money to take it to the next level. Life sciences startups are well suited to this philosophy since they focus on well-defined stages such as PoC, animal trials, and human clinical trials.
Entrepreneurial Economics
Clearly, every extra round of investment dilutes each founder. Thus, the value of their stake may not keep pace with the company’s valuation. Moreover, the founding team may lack the skills required at later stages. In fact, a larger company may be in a better position to make the product more mature or capture a greater market share. Notably, early exits provide entrepreneurs not only capital but also industry credibility. The latter can be leveraged in the next venture, where the track record of a successful exit provides reassurance to investors.