Exit options. Exiting a business signifies the end of ownership for the current shareholders. It may encompass all the current shareholders or just a few. A VC fund would typically push for a successful whole company exit, which would be a sale of the whole company to a third party. This could be a strategic sale to a competitor or another company looking to gain exposure to the sector where the company operates. A strategic sale often leads to the highest exit valuation as a competitor is willing to pay more to gain synergies between the two companies. Another option is for the VC fund to exit the company and sell its portion to another investor, possibly another VC fund or a private equity fund. And lastly, if the company reaches a significant size, the decision may be made to list it on the stock market. A successful exit would be selling the company or stake stake within the planned timeframe of the VC fund's investment plan. The sale would be for the highest price possible and significantly more than the investment cost to justify the time and effort put into managing the investments. Conversely, an unsuccessful exit would be a slow, long, drawn out exits outside the planned timeframe of the VC fund. The company may have run into difficulties and gone bankrupt, so the exit would be a forced liquidation. The company may shut down due to internal issues or external or macroeconomic or political events. It doesn't matter exactly why, but a bankruptcy would remain an undesirable exit. Another unsuccessful exit is where the sale price may be lower than targeted.

This may happen if the company is unable to achieve its planned growth. If the future prospects look bleak. Investors may prefer to achieve a sale of any sort rather than face what they consider inevitable bankruptcy in the future. So to conclude, a VC fund will always have an exit timeframe in mind. Remember, it has pledged to deliver a return to its own investors, so we'll be keen to deliver a targeted return on investment as quickly as possible. This will enable the capital to either be returned to its investors or used for another hopefully successful deal making large returns for itself and its investors. Most VC term sheets have exit options clearly defined. This provision protects the VC fund if the company fails to perform according to these targets.