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Just as any good novel has a complete narrative arc, the story of your startup needs to include that ever-important endpoint—when investors learn about how they’re going to get their money back, and what kind of premium they can expect for the risk they’ll be taking.
But let’s be honest: for a lot of founders, talking about your exit plan feels like talking about prenups on a first date. But if you sidestep the exit conversation while pitching your beloved startup to investors, you’re setting yourself up for a lot more pain down the line.
This tendency to leave out the exit strategy from a pitch deck has been made worse by certain popular, high-churn accelerator programs (who shall remain nameless) that have literally been preaching to founders that they shouldn’t spend a minute on exit strategy. This is the most wrongheaded advice I can ever imagine being given to a founder.
Why do you even need an exit strategy out of the gate? Simple. Every strategic decision, from your tech stack and feature prioritization to your beachhead target market segments and core management team hires, should be informed by your most viable exit opportunities.
The most important lesson I ever learned in flight school 40 years ago was to keep a tape recording going in my head at all times: “where am I, where am I going, and how I’m going to get there.” This works beautifully for startup CEOs as well. It has served me well in building ten startups of my own from zero to 1.
“Where am I,” or your situational awareness, is understanding and truthfully representing your traction-to-date. “Where am I going,” your final destination, is in 99+% of cases going to be the sale of the company to an acquirer. “How am I going to get there” in this case isn’t about maneuvering around traffic and weather, but rather competition, the need for additional downstream funding rounds, and so on. It’s your flight plan, and you should never take off without it.
Before your first pitch deck hits a VC’s inbox, you've got homework. Pull up Crunchbase, CB Insights, Pitchbook, plus your favorite AI research tools, and start mapping out the chessboard:
Treat this exercise just as you would any market due diligence, not something you’ll “figure out later.” You want to pitch to investors that acquiring you someday is not a far-fetched hope, but somewhere between “likely” and “inevitable.”
The cold truth: most acquirers don’t even look your way until you clear a certain size—usually past $1M–$1.5M in annual revenue for SaaS, or an equivalent growth rate if you’re playing in another arena. Got $5M+ in ARR and that hockey stick graph? Now you’re really in the conversation for $20M–$100M exits. For hardware companies ARRs typically need to be 2-3x bigger than for SaaS.
But size alone won’t save you. What tech giants crave is strategic value. Maybe you have the user base, the tech, or the talent that fits a buyer’s jigsaw puzzle perfectly. Hot sectors with hype and “buzz” can break all the rules—but don’t count on being a unicorn in a field of horses.
Forget what you heard at your cousin’s barbecue. Acquisitions are usually based on 3–5x annual recurring revenue for sane deals. Strategic buyers with champagne dreams may pay more in a bidding war, but unless you’re holding the only life raft in a sea of sharks, anchor your expectations.
Look at:
All this assumes you’re a value builder, not a romantic that plans to “never sell.” Don’t kid yourself, investors don’t like living in a house with no doors. Always signal that you, your co-founders and your key stakeholders will remain vigilant for potential advantaged exit opportunities at any time.
The best companies I’ve seen run tight ships, know their financials cold, and always have a list of likely buyers taped behind the monitor. Keep your data room tidy, your cap table clean, and your ears open for changing tides in the market. As the saying goes, “luck is when preparation meets opportunity,” so already be ready to seize on the opportunity to respond to a feeler from a potential acquirer.
It’s also a good idea to get to know the best M&A advisors in your geographic region and industry sector, and keep them on speed dial; so when that first call does come in, you can move rapidly into action to draw a heated bidding event and maximize that exit value.
In the world of venture scale startups, most investors are looking to make their high ROI targets by virtue of strategic exits. Meaning, they’re making money off the stock price pop, not from free cash flows of the underlying business. The latter type of company that is able to generate high cash flows is going to be able to pursue an alternative financial exit strategy, as well, such as selling to a private equity firm.
Thanks to the burgeoning use of AI to growth hack everything from code development to highly-optimized digital marketing campaigns, we’re seeing a rising trend in founders avoiding priced rounds with institutional VCs altogether, and just building a sustainably profitable business. (This is one reason we developed the Venture Mechanics SAFE Note structure to protect early pre-priced round investors.)
There is nothing wrong with a financial exit. It may take a little longer to get to the same kind of exit value as a strategic exit might pull in, but when there are fewer shareholders to split the purchase price with (especially when liquidity preferences can spoil the outcome for Common stockholders), it isn’t necessarily a bad way to go.
Getting your exit ducks in a row before you pitch investors isn’t being idealistic. It’s being professional. It tells investors—and yourself—that you’re playing the long game, that you understand the rules of the road.
