Glossary · Equity and dilution · Updated
An exit is the event that turns shareholders' shares into cash: a trade sale, a buyout by a fund, or a listing. It is the horizon that shapes all of venture capital's logic, since a fund only realises its performance at that moment.
Three main routes exist and they are not alike. Acquisition by an industry player is by far the most common in Europe: an established company buys the technology, the team or the market position. A buyout by a fund, often leveraged, applies to more mature and profitable businesses. A listing remains rare and requires considerable scale.
Proceeds are never simply split pro rata. Liquidation preferences apply first, in the order set by the articles and the shareholders' agreement, and only then is the balance shared. That is why two companies sold at the same price can leave their founders with very different sums.
Timing has practical consequences. Seven to ten years commonly pass between a seed round and an exit. A founder thinking of selling in three years and a fund needing an exit in eight do not have the same interests, and that misalignment is better resolved before signing the shareholders' agreement than after.
Example: splitting the proceeds of a €30M sale
Investors put in €8M in total for 40%, with a 1x non-participating preference.
| Sale price | €30,000,000 |
|---|---|
| Total invested by the funds | €8,000,000 for 40% |
| Option A: exercise the 1x preference | €8,000,000 |
| Option B: convert to ordinary shares | 40% × €30M = €12,000,000 |
| Option the investors choose | Option B, more favourable |
| Amount going to founders and employees | €18,000,000 |
| Multiple returned to investors | 1.5x |
| Common time from seed to exit | 7 to 10 years |
At €30M the liquidation preference does not bite: investors are better off converting. It would have changed everything on a €15M sale, where Option A returns €8M against €6M on conversion.
The common mistake
Only thinking about exit when one appears. The clauses governing it, drag along, liquidation preference and lock-up, are negotiated in the first round and determine your room for manoeuvre seven years later.
Frequently asked questions
What are the different types of exit?+
Mainly three: acquisition by a company in the sector, by far the most common, a buyout by an investment fund, and a stock market listing, which remains rare and reserved for larger businesses. Partial secondary sales, covering only part of the equity, sit alongside these.
How long until an exit?+
Seven to ten years between the seed round and the exit, with wide dispersion. That delay is why a venture fund has a life of roughly ten years, and why it becomes insistent about exits in the later years of that period.
Related terms
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