Developing an exit readiness index: a research note

Abstract

A proactive and viable exit strategy is a key influence on the ability of firms to raise equity capital. Investors in firms with such an exit strategy will improve their prospects of achieving a successful exit. However, the issue of ‘exit readiness’—especially in the context of trade sales, which account for the majority of exits of venture capital-backed firms—has attracted limited attention. Based on interviews with business angels, venture capitalists and others, this paper develops an ‘exit readiness index’ for trade sales that can be used by investors to identify firms that are exit ready and demonstrate to entrepreneurs what is required to build a viable exit strategy. The paper proposes that the ‘exit readiness index’ should be tested on longitudinal panels of start-up and nascent firms in various countries in order to determine its predictive ability.