What's the best way to decide on a partnership exit strategy?

The size of the fund and geography are the main factors to consider. For example, to expect IPOs in a small european country or less mature market would be unreasonable due to the lack of precedents and low volume of IPOs in those markets. However, if your fund is based on Berkeley/Stanford grads, this may be more reasonable as there are significantly more IPOs in the Bay Area. Moreover, if you fund is $50 or $100M, you may not require Unicorns for a great fund return. On the other hand, if your fund is $400M you will likely not be able to return enough capital if you stick to M&As. For example, imagine you have 10% at exit. This means if you need a 3x, that is $1.2 billion and if you have 10% you need to be part of $12 billion exit deals.

Choosing the right partnership exit strategy hinges on the business's goals and the partners' preferences. A buyout offers a straightforward path, providing liquidity but may strain finances. Mergers can foster synergies, pooling resources for growth, but require careful integration. Opting for an IPO brings visibility and capital infusion, though it demands regulatory compliance and market volatility management. Each approach carries unique advantages and challenges, demanding a tailored decision aligned with the venture's trajectory and stakeholders' risk appetite.

I'd highlight the important factor as clear and open communication among partners. Regular, transparent discussions about expectations, goals, and concerns can significantly ease decision-making. This approach ensures that all partners are on the same page and can collaboratively identify the most suitable exit strategy. Effective communication minimizes misunderstandings and conflicts and helps to align each partner's interests and visions with the overall objectives of the exit. This is crucial in assessing the feasibility and desirability of different exit options, ultimately leading to a more harmonious and successful transition.

In the venture capital landscape, exit strategies are not just about financial returns; they're about strategic positioning for future growth. As markets evolve, we're seeing a trend towards longer holding periods as investors seek to maximize value creation. Additionally, the rise of secondary markets and direct listings offers new exit avenues, reflecting a shift in how liquidity events are approached. Founders and investors alike must stay agile, considering not only traditional IPOs and acquisitions but also emerging technologies and platforms that could redefine exit mechanisms in the years to come.

The principals buy a couple of nice bottles of alcohol and meet in a neutral place. Then they can have a frank conversation about each other and their wants and needs. If this is not possible, then the next best option is to figure out how to bring in someone to be the "bad guy" or mediator. This would need to be performed in a non-binding context with everything said held confidential and not usable if litigation occurs.

For people that have no experience it is important to understand that a deal can fall through at all stages. You are only done when closing happened and the money is wired. I have even seen signed deals not closing. So you better have options in case that happens. Long story short: you should not bet on one horse only.