According to the SmartUp methodology, exits generally fall into two primary categories. The first is an Initial Public Offering (IPO), where the company lists its shares on a public stock exchange. This is often considered the “jewel in the crown” for Venture Capitalists because it typically offers the highest valuations and liquidity. However, SmartUp analysis of Israeli startups between 2000 and 2024 shows that IPOs are statistically rare, with only about 1 in 500 companies achieving this outcome.
The second category is Mergers and Acquisitions (M&A), where the company is bought by another entity. This can occur due to financial success, where the startup is profitable and acquired as a cash-generating asset. It can also happen because of a strategic or technology need, where the buyer wants to fill a gap in their technology stack or eliminate competition. Other scenarios include acqui-hires, where the acquisition is primarily for the engineering team, and distress sales, where the company has run out of money and is sold for a fraction of its invested capital.
In the traditional Venture Capital model, an exit is not optional. VC funds have a defined lifespan and must return capital to their limited partners within that period. As a result, VCs push companies toward large exits to compensate for failures elsewhere in their portfolio.
Yonatan Stern describes an exit as a “Finite Game,” meaning it has a clear ending with winners and losers. Once an exit happens, the game is over for the founders. In contrast, the SmartUp methodology promotes playing an “Infinite Game,” where founders build a profitable, sustainable company they can run indefinitely, making an exit a choice rather than a necessity.
Not all exits create wealth for founders. A company can be sold for a seemingly strong valuation, yet founders may receive nothing due to aggressive cap table terms such as Liquidation Preferences and Participating Preferred stock. In these cases, investors are paid first and may take the entire purchase price.
The SmartUp strategy emphasizes leverage. Companies that are profitable and cash-flow positive do not need to sell. This independence allows founders to negotiate higher prices based on profit multiples or choose not to exit at all and continue enjoying the profits.
