What should I include in the "exit strategy" section of a business plan?

I'm need to develop an exit strategy regarding being acquired rather than an IPO, but I'm a geek --- not a finance person. What should I include to keep from looking like a total boob?

I have been reading a book entitled "Angel Investing" by Mark Van Osnabrugge and Robert J. Robinson, but it doesn't clearly state what to include.

I should add that the business is in a very early stage, ie no product or revenues.

Well a good approach is to posit several possible scenarios for how you business may end via acquisition. Which players are interested in the technologies you have built? What would be the value of your work to them? What alternatives do they have to acquiring your technology?

By working through these scenarios, you'll already get a good sense of the scale of an acquisition based exit. Now this is all assuming the value of your technology on its own merit, outside of how much business infrastructure you have built around it.

To evaluate that element properly, you need to examine the basic financials of your business. Are you profitable? Is there significant revenue? Is there significant debt? If the business has been running for a bit and generates profit with modest operational cost, then you can probably get a buyer based purely on this fact. You should expect to get anywhere from 2-20 times the value of yearly revenue, depending on the operational quality if your business.

Anyhow, your exit strategy needs to include these basic financial numbers, or your projections of them for the future window where the acquisition might happen, and then it should lay out the attractiveness of an acquisition for the potential technology buyers. If you do this, you would have done your due dilligence, and the finance guys can take it from there.

In the exit strategy of your business plan you should outline what you would like your long term source of funds for the investor to be. Basically - how does the investor get his cash back. An IPO and being acquired aren't the only options: you can also run the company to be a source of cash to pay back to investors. (Those tend to be rare in tech companies but work very well in service propositions).

Business plans whose exit plans are soley being acquired are generally risky and may turn off sober investors in "normal" market conditions. (The current craze right now is reminiscent of the late 90s so I'm not sure it can be considered normal). If indeed your exit plan is solely to be bought you should list comparable or similar companies that have been bought, potential acquirers of your company, why you feel that your company would make a good acquisition target and, if possible, how much the acquiring companies paid to buy your comparables. Also remember, that if your plan is solely to sell the company, then that should be reflected in the way you plan to build it, the types of people you hire etc. Good luck!

- Dividends from profits. Presumably sooner or later your business will be profitable. If the business never gets sold (i.e. you decide to keep growing it) then giving dividends based on the profits is the main way people make their money back and then some.

- Partial buyout from a strategic investor. If you sell lawnchairs then perhaps US Lawnchairs Inc. might want to buy 20% of your company a few years down the road. Passive investors can be bought out by strategics.

- Acquisition. You can sell your company to a "horizontal" buyer (for instance, in the example above, you can sell your company to another company who sells lawnchairs) or a "vertical" buyer (i.e. someone who sells furniture) or an unrelated buyer who wants to break into the business you are in. The horizontal buyers pay the least and the unrelated buyers pay the most.

- Leveraged buyout. If your company is generating cash flows then you can borrow the money from a financial buyer (an LBO firm or a bank) who will allow you to buy out your passive investors.