Financials From Revenue To Profit To Free Cash Flow
Investors expect firms they invest in to build something significant and to take it to exit. Exit, in this sense, means realizing the increased value in the invested equity of the company in a liquid form, like cash or other cash equivalents (public stock that can be freely sold). It is this future value—along with the time to achieve liquidity—that attracts investors. From the earlier summary of IRR, you should now understand that a large return many years out may be less attractive than a smaller return in a shorter period of time.
While the eventual exit of your firm may occur in ways that you cannot accurately foresee, investors will nevertheless expect that you present plausible exit scenarios along with a timeline that will allow them to calculate an IRR to compare your deal with others.
Your exit plans need to be clear at the founding of the company, because they will dictate how you operate it. For example, if you plan to become a publicly listed company, you should follow generally accepted accounting practices from the beginning in order to avoid costly and lengthy reformatting of historical documents. Tumblr may have been needed to allow Yahoo to accelerate changes in their business model to built greater stockholder value.