In venture capital terminology, the term Exit Strategy refers to the strategy that a venture capitalist employs to cash out an investment. The Exit Strategy is also known as a “liquidity event” and “harvest strategy”.
For example, most venture capital investors intend to hold their investments for three to eight years, which is when the Exit Strategy will often be applied. In many cases, the Exit Strategy will be executed in the form of a merger or acquisition of the venture capitalist’s financial position in the company in a private business transaction. Ideally, the venture capitalist would expect to have the company go public through an Initial Public Offering or IPO. At this point, the previously illiquid investment made by the venture capitalist then becomes instantly liquid and the venture capitalist has the perfect Exit Strategy that is also often highly profitable.