Subject: VCEF

Textbook Chapter 17

Summary

Harvesting: The Exit

Exit Timing

• BA typically less exit centric than VC
• Avg 7 years for IPO, 4 years for acquisition
• Factors - market condition, investor pressure

Exit Routes

1. IPO
   • Most profitable exit route
   • Visible ("grandstanding" for VCs and founders)
   • Only partial exit (others lockup period)
   • High scrutiny and disclosure requirement
   • High transaction cost
   • Time-consuming
   • Process
     1. Beauty Contest - approach investment banks to become lead underwriter
     2. Underwriter creates a price range
     3. Marketing of IPO - Roadshow
     4. Final IPO price (few days before trade)
   • Anomalies
     • Underpricing - first day return usually positive, oversubscribed
     • Long-term underperformance
     • Hot issue periods
2. Acquisitions (trade sale)
   • Full exit
   • Can be used with all investment types
   • Low transaction cost
   • Potential conflict with entrepreneurs
   • Lower value
3. Buyouts
   • Partial or full exit
   • Typically last resort
4. (Written off)
   • Liquidation
   • Complete or partial loss of investment

• Can be a combination - typically higher profit

Notes

• Acquisitions most popular
• In US, IPO 2nd most pop but EUR is Buyouts
• Exit numbers from IPO dropping in US and EU
  • Driven by large firms acquisition
  • Private IPOs