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What Exit Strategies Are Available to Private Equity Investors?

Private Equity (PE) refers to the capital individual investors and private equity firms put into a company. Investors of institutions typically make PE investments through leveraged buyouts or venture capital funding. Private equity can be used for a wide variety of purposes, from acquiring new equipment and expanding operations to saving a failing company.

Private equity investors typically expect to see a significant return on their investment within five to seven years, at which point they will sell their stake and cash out. Private equity investors can choose from a variety of sale options.

Private Equity Exit Routes

Private equity and venture capital investors always have an exit strategy in place before they invest, and they never intend for their relationship with the company to last indefinitely. An exit strategy is a plan for a venture capitalist to get out of financial investment or sell off tangible business assets once certain predetermined conditions have been met. Investors in private equity and venture capital need to be highly active about their exit strategies at the time of entry. Knowing your exit strategies is a prerequisite to entering any arena. Investors in private equity want to be well-prepared from the get-go so that they can collect profits when the time comes. The goal of creating an exit policy is to get out of a losing investment or shut down a business that is not profitable. The goal of this exit strategy is to cut losses as short as possible. When a property or business venture has reached its profit goal, an exit strategy can be implemented.

What Are The Modes Of Exit?

Some of the modes of exit include:

Enterprise purchase by another firm

If an outside party is interested in purchasing the entrepreneur’s entire business, the venture capitalist or private equity investor can recoup his or her investment in the investee company through the sale of their stake in the company.

Initial First Public Offering

Once the investee company’s bonds are quoted at a premium on stock exchanges, the VC will put his holdings up for public auction using public matters. Initial public offerings (IPOs) can be lucrative for investors if the company can be valued at a high enough level, the markets are healthy, the management is willing to cooperate by staying in place, and the investor chooses to hold onto their shares for a significant period. Problematically, valuation is highly sensitive to current market conditions.

Acquiring a New owner for an Existing Business

The best way for a venture capitalist or private equity firm to recoup its money from an investee company is to sell its stake in the business to an outsider interested in buying the company outright.

Liquidation of the Investee Company

If the investee company fails to turn a profit and suffers losses, the VC or PE investor can try to get his money back through a settlement or negotiation. In the event of failure, the business is saved by judicial winding up.

Share Repurchases by the founders

If the promoters of the investee company wish to repurchase the shares owned by the VC and PE at the then-current market price, they may do so by the terms of the agreement entered into with the company. If they decline, the venture capitalist will look into other options.

Change of Venture Capitalists

Private equity and venture capitalists can sell their stake in a company to another VC firm that is interested in acquiring their equity stake. The venture capitalist may be selling at a loss to cash out of the company.

Self-liquidation Resolution

Debt financing from venture capitalists and private equity firms is self-liquidating because the majority of the loan principal and interest is repaid over the life of the loan.


Having a well-thought-out plan for how to get out of an investment makes private equity investors more likely to enter, make changes to, and leave a company in a positive mood. One can deduce that it is crucial to achieve the expected return on exit to consider the pros and cons of the various exit routes while keeping in mind the nature and reasons of the private equity investor. Venture capitalists and private equity investors expect a high rate of return on their money invested in a company and that rate increases with the success of the company’s exit.

Written By

I am Nicholas, a freelance writer, and a professional blogger, who enjoys enlightening others about unknown and little-known facts. I love to write on all general and professional topics.

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