Exits v/s Exitability at each stage — Could this be a better narrative for the industry?

Exits are marketed these days and its good to see. Far cry from a time when I was once asked if I managed ‘people exits’. Having facilitated and orchestrated exits through all possible modes for a diversified portfolio over the last decade for shareholders, today the environment, the hustle and need is far active. There are both good and less good aspects to improve.

All talk and narrative has been on exits (investor). Is there a merit in elevating this to evaluating ‘exitability’ at each stage + ‘investability at each stage’ which then goes back to the business model and growth of the underlying asset — the business.

Founders: Purposely starting this note with founders who otherwise come last in other posts. Apart from managing business, now there is shareholder and captable management. And yes its take a lot of energy and frustrations when you have to do that more often and with increasingly large set of people. With time and addition of new investors/investor categories — expectations, needs change or evolves. Needing exits early or managing when and how exits can be offered and practicality of these at early stages needs to be called out. Yes I am mindful all dont have choices when they raise, but one must always know the type of investor and what kind of exit horizon one has. And no harm in re-assessing this each year and each progressive stage. Liquidity are events and not always only features to help investing in a exitable business.

Mutational Listings: The Macro environment having a favourable window for exits, largely capital markets driven is always leveraged by the investor ecosystem to reduce the exit overhang one has in the portfolio. Just like work expands to fill the time available for it, in this case the business model needs adapt to the goals within the window available for it. So its normal to see a mad rush to achieve things. Margins, economics, profit and yes that fellow called CashFlow comes to forefront. But one does Force Fit. That gives rise to Mutational Listings, just like mutations, some dont adapt well post the event.

New investors entering the ecosystem at each stage: Some also are the ones who end up helping earlier stage one get their so called ‘exit’ to then fill the LP reporting slide and be ready for the new fund marketing document. Interestingly last few years as the angel networks ecosystem has matured a bit, it also has evolved into newer early stage funds. Now no-longer I am surprised when each such ‘new AIF’ comes with a promise to give returns and exits within 2years for new investors to signup to them. Some places this reminded me of insurance selling three decades back. But thats what it is sales. Buyer Beware or Be-aware — very much applicable always.

Lack of Perpetual Vehicles in India — Growth stage and late stage ventures dont always continue to get their next financial investor for variety of reasons including founder stake remaining, attractiveness of an entry valuation for a new investor v/s what is an exit valuation for multiple, hunger for the founder to continue to build, growth of the business model to grow the TAM to adjacency or newer markets etc Also the collective decision making of investors and founders, influenced by a need to provide exit promised to investors means you look at capital markets and M&A as the two prime sources. PVs have been around and used by sophisticated investors to continue to hold and fund ventures beyond the fund life if needed or extend the part of multi-stage investments. Probably the time and the maturity of Indian market could now see this evolve in the next 4–5years.

Depth of Indian domestic M&A (from startup exitability pov) while it grows continues to still be not as deep in the US and by a large margin. Whether thats a reflection of the state of corporate innovation and the risk appetite to leverage the innovation/startup ecosystem etc — well thats for another discussion. But trends are encouraging. And NO I dont count Acquihires as a part of any of these, nor are they exits of any form. Slides can always be made to look nice.

The best exits are the ones which are a bye-product of growth investments. Multi-stage exits over longer period of time, if one has the ability to hold have been great fund returners as I have seen. Secondaries for new investors to come in companies that they missed out to also help liquidity needs of some early stage ones — are around, though the power law ensures they get concentrated where no one is looking to exit but hold. But 2024 I see some changes in this for many vintage funds and other new funds knocking doors to get them in India participation mode.

Alignment of interests can change in the period of association for an investor. Its important to cultivate a healthy dialogue. Many times the need for an exit from a company, may actually be due to a lack of meeting cashflow needs from other parts of the asset allocation but it could sometimes be unfair to a company founder and other co-investors. And thats also an element of responsible investment discipline. How you act is also a function of how you are perceived as a Brand. On the other side, providing exits to multi- stage investors is a good Branding for being an investible business.

Sameer Karulkar is the Founder and Partner at Coverpage Ventures Advisory LLP. follow me at — https://www.linkedin.com/in/sameerkarulkar/ or https://twitter.com/KarulkarSameer.