Exit value

Exit values are a critical metric for evaluating the return on investment (ROI) and overall success of venture capital investments.

The exit value and exit multiples are closely related financial metrics used in venture capital to evaluate the ROI from an exit event. The exit value is the total amount realized from selling or going public with a company, while the exit multiple measures this value relative to the amount of capital invested in the company.

For example, if a venture firm invests $40 million in a company that later exits for $200 million, then the exit multiple would be 5x. Essentially, the exit multiple is used to evaluate the returns generated for investors.

Exit values can be influenced by factors such as the company’s financial performance, market conditions, industry trends, and strategic fit with potential acquirers. The valuation of the company at the time of exit is typically based on factors such as revenue, earnings, growth prospects, and comparable market transactions.

In venture capital, the main types of exits are:

• Acquisition
  An acquisition happens when a company is bought by another company. The exit value is then determined by the purchase price.
• IPO
  In an IPO, a company goes public by issuing shares to the public. Generally speaking, investment bankers working on the valuation of the company are the ones deciding on the price at which the firm should makes its IPO. They typically do so based on their own analysis of market dynamics.
• Liquidation
  To liquidate a company means to sell its assets and distribute the proceeds to creditors and shareholders. This typically occurs if the company is unable to continue operations or meet its financial obligations. The exit value in this scenario is the total amount realized from the sale of assets minus any liabilities.