Scientist asks a VC: When asked about an exit, is it a trick question?

Welcome to a new part of a Venture Capital Primer for Scientists series based on hundreds of workshops I have given during my work as a deep tech VC at Main Sequence.

It is not a trick question.

Exploring this question reveals a longer perspective on where the company is going. Here are some topics that interest me.

#1: What is your hypothesis for the big version of this company?

Most VCs need a big company to rise from the seed we have today. Imagining a future point where an investment of time and effort turns into money requires telling a story about the decades to come.

What happens to make this possible and where has the value come from?

#2: What kinds of exits happen for companies like this?

This question goes to risk.

Some companies have a path that has earlier exit opportunities. For example, pharmaceutical inventions are often sold at a point where the drug has moved through early stage trials.

Some companies need to invent a category and there is little precedent for an exit. If an exit is going to come, it will take a long time.

If there is an earlier exit possibility, it doesn’t mean you lack courage and ambition. It just means that it is possible and that is helpful to understand.

#3: How founder & VC exit, is a different story to the trajectory of the company

VCs need an exit at some point. Most of us operate 10 year funds, meaning that that we aim to return capital to our investors in this timeline. That does not mean the company needs to IPO or be sold. There are other ways for VCs to exit and we are increasingly seeing VCs staying in beyond the 10 years in agreement with their investors.

Founders may outgrow a company or it may outgrow them. That’s OK too. Founders always do what is best for the company. Most don’t exit entirely and stay a part of the DNA, attached with their equity.

Either way, the company isn’t over because the VC or the founder exits.

#3: Play the ‘Infinite Game’

The only damaging implication you can leave in an exit conversation is a terminal view of the company — that it is DONE when an exit happens.

When we speak of founder and VC exits it needs to be in the context of building a generational company that can prosper without us.

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Every day, I write about what I am learning in deep tech venture building. I hope you will follow me if this is valuable to you ⇢ @philmorle

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