A venture capitalist is a temporary owner during the growth stage of a company. The goal is always to exit and to realise potential profits for the company’s owners. Exits take a surprising amount of time for owners and management, and the process must be prepared for very carefully.
At Finnish Industry Investment, we analyse the factors that correlate with positive profits from venture investments. A good profit on exit seems to be supported by, among other things, having independent sector experts on the board and by the quality of the company’s financial management. Somewhat surprisingly, the extent of the patent portfolio really didn’t make much difference. A good investor was also able to work with the board and management to make the needed changes despite an insufficient strategy at the time of the investment.
A successful exit requires getting the company into shape first and finding a shared vision for the exit strategy between the owners. Only then can the focus be on finding interested buyers. Finally, an intense negotiation process is completed before profits can be realised. The value of a growth company to a strategic buyer is high already in the early development stage, whereas value based solely on growth and profitability figures requires a long trajectory and often additional investments. In fact, the timing of the exit is crucial in terms of the return on the investment.
Buyers often approach companies of interest on their own initiative. A company should always be prepared to engage in a dialogue with a buyer. Fortunately, the number of positive exits is on the rise, which is promising for the future of the entire investment category.