Exits generally fall into two main categories. First, there’s the Initial Public Offering (IPO), where a company lists its shares on a public stock exchange. VCs often see this as the ultimate success. It typically brings the highest valuations and best liquidity. But here’s the reality, analysis of Israeli startups between 2000 and 2024 shows that IPOs are incredibly rare, happening for only about 1 in 500 companies.
The second category is Mergers and Acquisitions (M&A), where another company buys the startup. This can happen for various reasons. Sometimes it’s financial success where the startup is profitable and gets acquired as a cash-generating asset. Other times it’s strategic or technology-driven, where the buyer wants to fill a gap in their tech stack or eliminate competition. You’ll also see acqui-hires, where the acquisition is really about getting the engineering team, and distress sales, where a company has run out of runway and sells for pennies on the dollar.
In the traditional VC world, exits aren’t optional. VC funds have fixed lifespans and must return capital to their investors within that timeframe. This creates pressure to push companies toward big exits to make up for the portfolio’s failures.
An exit is essentially a “Finite Game”. It has a clear ending with winners and losers. Once it happens, the game is over for the founders. The SmartUp approach, on the other hand, encourages playing an “Infinite Game,” where you build a profitable, sustainable company you can run indefinitely. An exit becomes a choice, not a requirement.
Not all exits create wealth for founders. A company might sell for what looks like a strong valuation, but founders can walk away with nothing because of aggressive cap table terms like Liquidation Preferences and Participating Preferred stock. In these situations, investors get paid first and can take the entire purchase price.
The key is leverage. When your company is profitable and generating positive cash flow, you don’t need to sell. This independence lets you negotiate higher prices based on profit multiples or simply choose not to exit at all and keep enjoying those profits.
