Business Exit Strategies
Business exit strategies depend on the current economic environment. The relative ease of an exit through an IPO or acquisition varies every year depending on the relative appetite of the capital markets and corporate acquisitors.
The Current Environment
The second half of 2008 will probably go down in history as the worst, or possibly second worst, IPO market for technology companies ever. In the third quarter, there were no IPOs of venture-back companies in America. This has never happened before. It's hard to image a worse situation - it would probably have to be two quarters with no venture-back IPOs.
So at this point in time, from a US perspective, there is effectively no possibility of a business exit strategy through an IPO.
Interestingly, this is a particularly good time to do an exit with an M&A transaction. M&A transactions had their best year ever in 2007, and the first half of 2008 looked equally good. The reasons the tech M&A market has been hot are described in this post.
At this point in time, from the perspective of business exit strategies, the best probability is to plan to be acquired. This will certainly shift at some point, and there will again be a time when IPOs are once again the preferred exit strategy.
Going Public - NASDAQ and TSX
Many people do not consider going public to even be one of their business exit strategies.
A NASDAQ exit is pretty close to being an exit. That's because a company large enough to IPO and NASDAQ is most likely going to have trading volume that would allow founders, and even venture funds, to exit over a reasonable period of time.
An increasingly popular way to finance companies is through the Canadian Public Exchanges. The TSX Exchange is even calling the small cap public markets "public venture capital". This can be an excellent way to finance certain types of companies at certain times. It is, however, almost never an exit. The TSX Venture Exchange, particularly, is too small to be an effective way for founders or investors to exit companies. These markets should be considered a viable financing strategy, but for all practical purposes never one of the desirable business exit strategies.
In earlier times it was quite common for company founders to sell their business to the employees, often financed by a leveraged buy-out. This happens very rarely in technology companies. It's extremely rare for this to be a viable exit strategy. The only time this type of strategy would be viable is in a company with extremely strong profit margins and a very predictable future.