Designing a Company Exit and Liquidity Strategy

Photo by César Couto

Most organizations over-optimize for fundraising and under-plan for liquidity. The paradox is that fundraising gets you headlines, while distributions are what earn you repeat investors. Without a clear plan to distribute capital on a predictable schedule, future fundraises can become exponentially harder, as return on capital is how investors will ultimately measure your long-term value creation. Investors are increasingly demanding clarity on your endgame: they want to understand your liquidity strategy, pacing of returns, and downside protection. If the market struggles, a secondary collapses, or a deal is delayed, how will you still generate liquidity and deliver results?

This article explores various exit paths available, how to prepare for them, and how to make disciplined decisions.

Early Exit Planning 

Exit planning early is essential. It signals credibility by showing investors you have foresight into outcomes, and not just an eye for the next hot company or the next fundraise. Early planning also prevents reactive, distressed exits by putting structure in place ahead of time. A strong liquidity framework shapes your portfolio construction, including reserve management, follow-on pacing, and when to plan for future distributions. Identify internal and external triggers for initiating a liquidity event, and build exit structures early so you are prepared when opportunities arise to avoid scrambling.

Effective exit planning helps you:

(a) Avoid distressed exits and reduce the risk of selling at the wrong time or with unfavorable terms.

(b) Build investor confidence by demonstrating a mature, disciplined view of realizing returns as the endgame.

(c) Shape smarter portfolio construction with better reserve management, pacing, and control over capital call timing.

Exit & Liquidity Paths Available

There is no single path to liquidity. While the obvious goal is to convert unrealized value into realized returns, that requires knowing possible paths:

Traditional Paths 

• IPOs - While usually the best outcome for all, IPOs are rare and sometimes less predictable in their outcomes, as the market is highly sensitive to macro conditions and cyclical. IPOs can produce extraordinary liquidity but require patience, a significant amount of governance, and strong capital markets.

• Strategic M&A, Acquisitions - These are acquisitions between companies that want talent, technology, or market share from the other, resulting in full or partial exits. Alternatively, some transactions may take the form of partial “acqui-hires” focused on hiring key employees with select assets or incentives, or paying for access to technology/IP, perhaps to avoid anti-trust concerns. In other cases, peer-to-peer mergers between similarly sized companies can unlock immediate capital, rather than waiting for a larger acquirer.

• Private Equity Transactions - Increasingly, private equity firms are buying minority or majority positions in growth companies. These can create meaningful interim liquidity, especially if a company is not yet IPO-ready.

• Internal / Industry Sales - This involves selling to a competitor, an adjacent company, or an internal investor/stakeholder. For example, selling a stake to another investor already on the cap table. This path can be simple, effective, and typically faster than larger strategic acquisitions, focusing less on expansion and more on consolidation or quick capital return.

Secondary Paths 

• Priced-Round or Partial Secondary Sales - Selling a portion of your position in a later funding round can help you realize early DPI (Distributions to Paid-In), typically with the company’s board approval. This approach allows you to sell a slice of your portfolio (or a single asset) to secondary buyers while maintaining exposure to future upside.

• Open-Market Secondaries - These transactions may occur outside of a priced equity round and allow investors to sell or transfer existing shares, often enabling early investors to realize liquidity while giving new investors access to proven companies. The sale is usually structured independently of the company or its board, provided the company’s bylaws or shareholder agreements permit such transfers. Pricing is determined by market demand rather than a new valuation round, and mechanisms such as tender offers or structured notes tied to future proceeds may also fall under this category.

Specialized Paths 

• SPACs (Special Purpose Acquisition Companies) - These are publicly listed shell companies that raise capital to acquire and take a private company public. If no acquisition occurs with the two year timeline, the SPAC is dissolved and capital is returned to investors. While SPACs can offer a faster route to the public markets, they carry high risk, and attractive returns are not guaranteed.

• OTC (Over-the-Counter) Offerings - Listing on over-the-counter markets can provide partial liquidity for smaller companies seeking public exposure without the full costs and requirements of a major exchange.

• Reverse Mergers - A private company can achieve public listing and liquidity more quickly by merging with an existing public shell, though this path demands strong governance and significant disclosures.

• Roll-Ups - Combining smaller companies into a single scaled entity to attract larger acquirers. This works particularly well in fragmented sectors (e.g., services, niche SaaS).

• Royalty or Revenue Share Deals - Especially in consumer categories, structuring a royalty or revenue participation agreement can return capital quickly while keeping ownership intact.

Research for an Exit

Researching in advance gives you a significant advantage by informing your understanding of price, timing, and negotiation leverage. Thorough preparation signals professionalism and often determines your leverage. 

1. Understand your odds
Not every business is easy to sell. An e-commerce brand with $10M revenue may have dozens of potential acquirers. While a pool cleaning service might have none. Knowing your liquidity profile will save you time and frustration later.

2. Know the market and multiples
Track comparable transactions, pricing, and discounts. Understand valuation trends, exit environments in your sector, and multiples of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Study downturn cases where liquidity options fell through. If investors ask “What is the path to liquidity?” you should be able to reference comps, not just optimism.

3. Approach buyers as partners, not out of desperation
The tone of your conversations matter. If you lead with “We need to sell,” you immediately sound desperate and the buyer will wonder what raw deal they are getting. Instead lead with, “We think there’s a mutual opportunity here...”

4. Keep options open
Never anchor on one buyer or one deal structure. Run parallel conversations to create options, which strengthens your position and allows for negotiation if you receive multiple offers.

5. Define your terms before you go to market
Force yourself to create clarity on what is important to you: valuation, ownership, structure, earn-outs, board roles, IP, etc. In particular, conduct internal valuation reviews, obtain independent valuations, and run scenario modeling in advance. This will allow you to tell a buyer what you are looking for without hesitation, and you will have answers to tough questions already prepared.  

6. Get legal review early
Engage legal counsel early to review your proposed terms and identify potential red flags before entering negotiations. Early input ensures your legal, structural, and compliance considerations are properly reflected in your term sheet and subsequent deal documents.

7. Do your diligence before they do
Pull together historical P&L, balance sheets, org charts, debt schedules, and sales data in advance. The best exits happen when diligence is fast and frictionless.
 

Investor Communication, Governance, and Decision-Making

Clear communication is essential to successful exits. By defining authority, setting protocols, and maintaining transparency, you build investor confidence and ensure liquidity events are handled with discipline and care.

• Define decision authority - Clearly identify who approves exits to ensure accountability and transparency, for example the Investment Committee, Advisory Board, Operating Agreement, or LPAC (Limited Partner Advisory Committee). 

• Establish written protocols - Document decision-making procedures for different exit sizes or structures so all stakeholders understand the process before opportunities arise.

• Align on exit expectations - Just as a company needs to know their top potential customers, investors should understand a company's desired exit outcomes. Is the company targeting M&A? Or exclusively an IPO? Regular conversations around exit goals, potential acquirers, and time horizons help align expectations. 

• Disclose conflicts early - Proactively identify and communicate any potential conflicts of interest within your investors, particularly in secondaries.

• Communicate selectively and with discipline - Only share potential exit updates with the broader investor base once terms are firm to avoid premature excitement or unrealistic expectations.

• Set expectations early and conservatively - Be conservative about estimated timing for first distributions and target return ranges. Plus, remind investors of the downside scenarios if exits fall through.

• Maintain consistent post-close updates - Provide timely, clear communication once transactions are completed; steady transparency reinforces trust.

• Choose the right channel for your liquidity process or roadshow - This could mean engaging with known investors and established relationships, or using brokers and digital secondary platforms to broaden reach. Keep in mind that brokers typically charge fees and may face incentive misalignment by prioritizing any deal that earns them a commission rather than the one that best fits your strategy.

A strong exit and liquidity strategy ensures you act with clarity when opportunities arise and markets shift in your favor. Thoughtful exit planning demonstrates that you can generate real returns, not just paper gains, through a predictable, well-governed process. Approach distributions with the same intention as fundraising, because true credibility comes from returning capital and building a lasting reputation for results.

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Kaego Ogbechie Rust is CEO at Foresight Advisors — working with foundations, investment firms, non-profits, and for-profit ventures — offering comprehensive support across vision & strategy, investing & financing, and operational planning during critical periods of your growth.
If you’re looking for help, contact kaego@foresightadvisors.com or visit www.foresightadvisors.com.

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