Question

I have one question to get answered - regarding the company TERRACYCLE and its intrepreneurs at the beginning. It is a recycling company.

Prompt: You will be going through a series of meetings with different investors. Your goal is, of course, to get as much money as possible since fundraising is taking a lot of time. At the same time, you do not want to give up your vision of TerraCycle’s development. In preparing for the meetings, you need to have the following point clear.

--> Exit time – when would you be ready to exit, and how would you reduce the uncertainties and risk your investors may perceive?

Answer 1

Exit Strategy: Exit Strategy is one of the important strategies for both investors and the founder(s) of the company. An exit strategy is a strategy which an investor will look for in the business plan presented by the founder(s) of the company, so it is important for the company founders to think about the exit strategy before presenting the business plan to the investors.

Exit strategy refers to the business strategy in which the founders and investors transfer their ownership to the third party to get the returns on the money and time invested by them in the startup.

There are many exit strategies one can think at the time of preparing a business model or at a later stage in the organization. Some of the well-known business strategies are listed below,

a. IPO (Initial Public Offering)

b. Management or Employee t Buyout.

c. Family succession

d. Merger & Acquisition

e. Liquidation.

f. Sell stake to a Partner or investor

Exit time is also important to think about when discussing the exit strategy of the startup. Exit matters because at the time of exit the actual value of the invested money or time will be paid to the founders, investors, and employees. Two most common way to exit your startup is Merger & Acquisition and IPO.

Merger & Acquisition: In this strategy, the startup will merge with another related company in your industry, or a big and established company will buy you out and pay you as per the valuation at the current market rate.

IPO (Initial Public offering) refers to bring your company in the public, sell the ownership to the public.

In the case of TerraCycle, we do not want to give up a vision for TerraCycle development, but the issue is the investor may not have the same commitment as we have in our startup. An investor who has invested huge money in the startup will get his return on investment at the time of exit only. So he will like to get out very fast when he gets an offer from the third party.

The investor will like to get to know what plans do we have for return on investment, so explaining the exit strategy is very crucial and important for their satisfaction. So we should answer in such a way that the investor starts believing in us and our idea. An investor will open his wallet when he thinks that we are also thinking about the interest of the investors.

We can answer like this,' we are thinking about the exit strategy for us and we have proper plans and evidence that we will become a large organization when we work together for the company. We have a financial projection with proven assumptions and we know industry trends properly, and with our collaboration and having your experience, we will become a large public company in the next 5-6 years." With this statement, we have a plant to go public that is a great exit strategy and fulfilling the goals of the investors and ours. We don't want to give up the vision of our company development, so by the IPO, the investor will get their return on investment and we will have the company operation in our hand. We can show the industry analysis and other IPO done in our industry.

The merger is also a good option to achieve the investors and our goals. We might merge with other larger and related companies that have the same kind of business model or our business model can help them in improving their business.

b. Startup or VC investment is full of risks and uncertainties. Out of 10 deals, 2-3 deals will be successful for the investors. So investors will decide any startup investment after complete research about the business model, industry, revenue opportunities, competition in the market, the risk involved in the business, etc. So the investor will definitely have this question in one of the discussion meetings and would like you to answer with complete risk management planning strategy and solutions of different types of uncertainties. This is also important for the founders to have an answer to this question because having an idea is a different thing, but the execution is tough. As per the research, more than 95% of startups are failed their 1-2 years only. There are different kinds of risks and uncertainties invoiced in the startup world, such as Financial uncertainties, market uncertainties, organizational uncertainties, competitive uncertainties, etc.

So we have a complete plan to reduce risks and uncertainties, that will make both investors and our interest safe. Each business model has different kinds of risks involved and the solution that worked with one company may not work with our company. So We need to plan for risks in advance and need to have smart solutions for each risk and uncertainties.

We can have the answer like this, "Being in this industry for 4-5 years, we have knowledge of the potential risks and uncertainties involved in our business model, and in past, we have solved multiple issues whether it is internal or external, with our smart solutions. We have a smart and qualified team and we are looking to expand our leadership and top management team, with the combined experience in the industry and sector-wise, we are quite confident that we will achieve create an environment where everyone has their own responsibility to solve the issue at each level of management. Our business model support solutions of major kind of business risks and uncertainties involved in our business. We are happy to hear from your side if you are looking at any potential risk in the business model, that will help us in understanding the kind of issues and we will have better solutions at this stage itself."

In this way we can get confidence from the investors and investors will be happy to hear that we have planned everything in advance to make the company successful. Investors have a better tendency to invest in these kinds of companies.