Venture capitalists invest in startups, buying shares. They hope the shares will increase in value and they can make an exit before the specified date.

<aside> 💡 Exit – the process of selling equity (shares) in which venture capitalists had invested, generally with a profit. Another word for exit is a liquidity event, referring to the conversion from an illiquid asset (equity in a startup) into a liquid asset (cash).

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Of course, there are other ways venture capitalists can make a profit, such as regular dividends, revenue shares, employment compensation, and even management fees. However, the major profit they make is through exits.

There are 4 main types of exits in the VC world:

• Merger & Acquisitions (M&A) – the process when one company buys another, taking a controlling stake of its share and the rights to the assets.
• Secondary market trading – the process when venture capitalists who invested in the earlier stage can sell their holdings to new investors during the later rounds.
• Stock buyback – the process when a corporation purchases stock from an angel or venture capital investor back.
• Initial public offering (IPO) – the process of offering shares of a private corporation to the public in a new stock issuance for the first time.