An important aspect of venture capital investing is the exit strategy. When VC funds initially invest in a startup company, they already have a vision of how they hope to exit their investment. Because VC funds are not buy and hold investors, they require a liquidity event for their investment. This could include the sale of the shares they held. This is so they can return the maximum amount of capital to their limited partners, the investors in the fund. What is an exit strategy? An exit strategy is a plan for the founders and investors of a startup company to sell or cash out their ownership, or to instead only partially liquidate their ownership stake. If a business has reached certain financial and operational milestones, the founders and investors can potentially earn substantial profits and exit. If however, the company's financial or operating performance has been below the targeted levels, the exit strategy will instead be focused on limiting the founders and investors' losses. If you ask any entrepreneur what their exit strategy is, they will probably tell you their planned exit route is an IPO or a strategic sale. However, there is a much greater variety of exit options available to a startup company, including a financial sale, for example, to a PE fund, a shared buyback, or a secondary sale. If things really go wrong, founders and early investors may be able to recover some of their investment through a liquidation.