Exit Scenarios

When it comes to an investment in private stocks there can be three fundamentally different scenarios: successful, neutral, and unsuccessful.

Successful scenarios: IPO, direct listing, SPAC deal, M&A deal

As soon as it becomes possible to sell, the SPV sells the stocks and receives the money into the bank account. The money is then distributed among the SPV’s investors according to their membership interests.

An M&A deal is not necessarily a positive scenario. If the company doesn't succeed, it may be taken over at a low valuation.

 

Early exit

You can exit investment at any time after the opening of a transaction. In this case, the investor's share is sold to another investor in the private equity market.

If an early exit is initiated by the SPV’s manager, he has to get the consent of the majority of investors (their shares in the SPV must exceed 50%). Moreover, the U.S. law presupposes the “best effort” commitment: the SPV’s manager can close an investment only if it's the best available option for investors.

An early exit at investor's initiative is possible if investor or manager has interested parties willing to buy his/her share in the SPV. However, the manager is not obliged to look for a new investor or buy back the share at his own expense.

This scenario can be negative or positive, depending on how the private market evaluates the stock.

 

Bankruptcy

However, there’s always a chance that a startup may fail to take off. A company may turn out unsuccessful and go bankrupt. This is the main risk of investing in a private company. In the event of bankruptcy, investors lose all or most of their money.