Exit Strategy


Everything You Need to Know About a Successful Exit Strategy

The Complete Guide to Business Exit Strategy

Every software company founder knows how important their decisions are to the trajectory of their company. Decisions have a trickle down effect, from the foundational moments of a nascent company to the final steps of an exit strategy. 

This is especially true in the world of software M&A in 2022, as increasingly volatile macroeconomic factors operating in the background make a founder’s judgment even more imperative as they lead their companies into the future. 

Despite market highs and lows, software is a nearly half-trillion dollar industry that keeps growing. With all these factors at play, it’s never been so important to begin with the end in mind for founders as they plan a business exit strategy. 

This guide breaks down the what, why, when, and how of exit strategy planning to help software founders lead their companies in the right direction now and in the future. 


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What to Consider

What Is a Business Exit Strategy?

A business exit strategy is the path to the ultimate outcome of your business. Common outcomes include an initial public offering (IPO) on the publicly listed stock exchange, a family-lifestyle business where founders aim to keep control within a circle of trust and run the business to consistent profitability, or a merger or acquisition from a strategic or private equity buyer. 

Think of an exit strategy as the roadmap that leads you to your final destination based on your individual and business goals. You should have an idea of where you’re headed from the start so you can make the right decisions as the business progresses and evolves. However, it’s also important not to get tunnel-vision. A flexible and dynamic exit strategy can help you navigate the unexpected twists and turns along the way.   

For example, your initial plan might be to bootstrap the business and rely on yourself and a small network to support the goals of the business without sacrificing a lot of equity. However, down the line, you may start growing like crazy and realize there’s something incredible about your product and its fit in the market. At this point, your vision might expand — what would happen if you scaled the business with outside help, or even went public with an IPO down the road? 

Ultimately, a business exit strategy is all about determining the right path to achieve your desired outcome. While the endgame options seem relatively limited on the outside, the truth of the matter is, an exit strategy is as unique as the founder and business they’re operating. The only wrong way to go about an exit strategy is to not have one at all. 



The Benefits of Preparing a Business Exit Strategy

An IPO or M&A event doesn’t happen overnight. Similarly, successfully navigating the exit process, whichever outcome it may be geared toward, is more like running a marathon than a sprint. Founders who create clear exit “training” plans up front are more likely to succeed in the long-term, both in their individual and business goals. 

Here are three ways that a business exit strategy benefits SaaS operators:

  1. An exit plan guides capital decisions. When push comes to shove, a clear exit plan will help leadership know what to do next from a capital standpoint.
  2. An exit plan helps you position your company. Knowing how to talk about your business and position it in the right way to future investors, shareholders, or partners will make you more likely to succeed in your desired outcome.
  3. Exit plans maximize your chance of success. If nothing else, an exit plan helps you prepare in advance to maximize an exit, both in terms of having a greater chance of success for an exit, as well as making the process smoother once you get there. 


When to Start Your Exit Strategy

The best time to create an exit strategy is today. It’s never too early to start creating an exit strategy for your software business. Whether you’re months or years in, it’s best practice to always have an idea of where you’re headed (even if that ends up changing further down the road). 

Why? Navigating an exit takes time, and thinking strategically about how to get there is no easy task either. Here are just a few of the components of creating a successful exit that founders should consider today. 

Thinking Strategically Takes Time

There are no easy answers when it comes to creating an exit strategy. Founders should prepare to answer all of the hard questions that will impact their future exit, such as:

  • What are you building towards?
  • How will you serve the market, attract customers, and differentiate yourself?
  • How will you position your business against competition? Is it sustainable and scalable?

Be Resilient in a Changing Market

Founders creating an exit plan need to be intimately familiar with their market. If your business is the car taking you to your dream destination, the market is the gas. You need to know how much runway you have to go on. 

Here are a few questions to ask as you prepare your exit strategy:

  • What is your total addressable market (TAM). How will it change? How fast or slow will the market adopt your solution?
  • If your market is large, how are you preparing to address competition? How long can you last on your own without outside capital? And then, how do you target a large, competitive market to find sustainable growth?
  • If your market is small, how do you ensure that you’re the best at what you do to differentiate yourself? How do you become the market leader and expand your market?

Keep Track of KPIs Now

Finally, an exit plan will largely be determined by performance metrics that prove to outside players that your exit destination makes sense for them as well. Whether you have an M&A event, go through an IPO, or pass the business down to a trusted circle of friends or family, being crystal clear on how your company is doing is essential. 

These KPIs just scratch the surface of metrics to track when it comes to pursuing an exit plan:

  ARR/recurring revenue growth

  Rule of 40

 Gross Revenue Retention Rate

  Net Revenue Retention Rate


  Gross Profit Margin

For more metrics and a deeper dive into how these affect valuation, check out our eBook here



3 Business Exit Strategy Blueprints

As we mentioned above, there are three main business exit strategies that the majority of software companies pursue: going public, keeping the business in a circle of trust long-term, or going through an M&A process. 

Based on the outcome you want for the business, here is how you implement an exit strategy under each of these three areas. 

1. Exit Strategy for Going Public (IPO)

If your goal is to build a large business that IPOs and becomes a public company, it’s important to recognize that only the top percentile of companies have a real shot at being successful in the public market. However, if you have skyrocketing revenue growth, a large TAM, strong product market fit, and a growing team, an IPO might be the right option for you. 

How do you get to an IPO? Your exit strategy should begin with looking at venture capital to help you fuel growth as you scale, scale, scale. Companies that IPO below $100 million in ARR are unlikely to keep pace with the growth needed to succeed in the public arena long term. Data shows that public companies with less than $100 million in ARR are more likely to go private again, and likely at a lower valuation than when they went public. 


  • Huge revenue growth and scale (at least $100 million in ARR)
  • Large TAM
  • Strong product market fit
  • Deep and experienced team growing quickly

Exit Strategy:

  • Partner with venture capital to fuel growth
  • Scale, scale, scale. Continue building out team and products, leverage M&A as a buyer, and invest heavily in go to market efforts 

What Success Looks Like:

  • Your company is growing incredibly quickly into a large market with a chance to hit the outcome of $100 million in ARR.

Consider Public Market Dynamics

A key consideration when it comes to exit strategy is timing in the market. IPOs in particular are more affected by outside factors that affect the public markets. Consider that 1,073 companies went public in 2021, yet only 92 went public during H1 2022. If that pace continues, we’re likely to see a 83% drop in IPOs year-over-year. 

Contrast that with more resilient options like an M&A exit. Our latest research indicates that macroeconomic factors are not impacting M&A multiples like they have in the public markets — M&A multiples have only dropped 4.5% year-over-year from 2021 to 2022. 

Indeed, in our latest survey, despite 60% of software investors saying they’ve seen a decrease in the volume of high-quality software deals, over half say that valuations for high-quality companies are unchanged or down less than 10%

2. Exit Strategy for Keeping a Family Lifestyle Business (Internal Exit Strategy)

On the complete opposite end of the spectrum, some founders have no desire to sell their business or take it public. Rather, they want to build a business that supports them and their employees and stays in their circle of trust (e.g., friends, family) for the long term. 

For this specific type of business, there is no external exit strategy in the traditional sense. Rather, the “exit strategy” is more of a succession strategy in that the company becomes successful and resilient enough to remain in a circle of trust forever. In these cases, the exit strategy is simply becoming profitable as quickly, efficiently, and sustainably as possible. At the end of the day, a profitable business is what will pay the bills and keep food on the table. 

In this strategy, there is no need for liquidity in the sense that the cap table and shareholders are fine to be paid off with distributions from the business. You have a strong enough foothold in a market that you can continue to serve without needing an exit strategy that requires funding (IPO, acquisition, venture capital funding, etc.). 


  • Strong foothold in a market
  • Outside capital isn’t needed to fuel growth
  • Cap table and shareholders are fine to be paid with distributions from the business 

Exit Strategy:

  • Take a direct path to profitability 

What Success Looks Like:

  • Your company is on the path to strong profitability

3. Exit Strategy for Going Through an M&A Process

If you aren’t a candidate for IPO or desire to keep the company in your circle, it’s likely you’re building a business with the goal of being acquired. The majority of software businesses fall into this category. Most will likely bootstrap the business and rely less on venture capital or growth equity in order to have a bigger slice of the pie at the time of their M&A exit. 

A successful M&A exit is both an art and a science, as moving pieces like performance metrics, market dynamics, and buyer type (private equity vs. strategic) all play a role in the ultimate valuation and outcome. At SEG, we help founders navigate these nuances to create a bespoke exit strategy that fits their desired outcomes. 

The first thing we recommend for an M&A exit strategy is to create a timeline for the desired outcome. This will help you stay on track when it comes to marking company milestones in the form of KPIs, document organization, keeping tabs on market conditions, and ultimately negotiating and closing a deal from start to finish. 

Here’s an exit strategy blueprint to follow with additional links to SEG resources.


  • Strong revenue growth and other performance metrics
  • Interest from strategic or private equity buyers

Exit Strategy:

What Success Looks Like:

Your company is growing and profitable, or moving toward profitability, with strong customer retention, high gross margin, a clean setup from FP&A and legal perspective, strong performance in the current market, and a growth-ahead strategy for the future. 

Private Equity vs Strategic Buyers

One of the key components here is deciding whether you want to be acquired by a strategic or private equity buyer or are open to either outcome. Choosing the right one for your business will come down to the nuances of things like the management team’s goals, product fit, upward mobility, and how your ultimate goals align with that of the acquirer. Here are a few differences to consider. 

Private Equity Buyers:

  • Who: Private equity buyers making platform acquisitions themselves or private equity-backed portfolio companies making a tuck-in acquisition. About 60% of SaaS M&A transactions involve PE firms.
  • Why: PE firms want to increase the value of their investment portfolios by adding high-growth companies with the most potential for ROI. 

Strategic Buyers:

  • Who: Publicly traded strategic buyers or privately held strategic buyers. They make up the minority of SaaS buyers, but have historically been the most aggressive acquirers.
  • Why: Strategic buyers want to plug existing product gaps or use an acquisition to enter new markets. They are more likely than PE buyers to focus on the product and business model value-adds in addition to revenue growth and profitability.  

Software Equity Group has 30 years of experience helping software founders create and execute successful M&A exit strategies. You bring the vision, we provide the M&A advisory services to get you there.

Learn more about our services here.