Exits . . .

are how venture capitalists and other investors liquidate their investments in companies and take their profits. The three most common exits are: taking the company public, selling the company or contractual liquidity agreements. The exit formula, or how the entrepreneur envisions the investor will eventually liquidate his investment, is a critical section of the business plan. Entrepreneurs must demonstrate that they understand and anticipate the investor’s exit. They must be ready to answer the investor when he asks, "How and when do I get out!" The best answer is, "In five years via a public offering or sale to a corporate buyer, at five times your original investment." The time period and multiple can be changed to suit the deal. See: Business Plan Format, Buy-Sell Agreements, Cashing Out (or In), Co-Sale Agreements, Downside, Going Public, IPOs (Initial Public Offerings), Liquidity Agreements, Puts.