Exit Strategy
An exit strategy is the planned pathway for realizing value and returning capital from an investment.
Allocator relevance: A key underwriting input that shapes timing of DPI, liquidity outcomes, and realized vs unrealized risk.
Expanded Definition
Exit strategy defines how and when value becomes cash: acquisition, IPO, recapitalization, secondary sale, or structured repayment. In private markets, returns depend on both value creation and the ability to exit into real demand. Weak exit planning can inflate paper gains without cash realization.
Allocators evaluate whether exits are consistent with the manager’s thesis, sector dynamics, and market liquidity—especially across different regimes.
How It Works in Practice
Managers underwrite potential exit paths at entry, track progress through value creation milestones, and adjust tactics as market conditions change. Exit decisions often reflect timing, valuation, and risk appetite.
Decision Authority and Governance
Governance defines who approves exits, how conflicts are handled (e.g., continuation vehicles), and how valuations remain consistent with realistic exit assumptions.
Common Misconceptions
- A strong company guarantees an easy exit.
- IPO is always the best outcome.
- Exits are decided only at the end of the hold period.
Key Takeaways
- Exits convert value into DPI; timing matters.
- Exit feasibility is regime-dependent.
- Governance and conflict management matter for exit decisions.