What are the asset exit scenarios? Isn’t it true that the first returns go to the last, larger investors, potentially leaving insufficient funds for other investors? 

Based on our experience from managing our initial funds, we know that there are essentially four positive scenarios for returning funds:

• IPO (Initial Public Offering) – requires careful planning and preparation, as it is a very difficult and complex process for the startup. However, once the company goes public (on any stock exchange), the assets become liquid, and public markets usually value growing tech businesses highly.
• Sale to an investor involved in the next investment round (“secondaries”) – the new investor may offer to buy out existing shareholders at a discount (usually 20%) from the price paid for new shares.
• Mergers and Acquisitions (M&A) – a strategic or private equity investor buys out the entire company from the shareholders. This is currently the most common mechanism.
• Management Buyout – this is the least common option, used when the company has not achieved impressive traction (growth) but generates organic profits. Usually, the profit multiple is much lower than for rapidly growing companies. However, the goal of a VC fund is not to receive dividends but to generate a return for investors within a finite period. Therefore, sometimes it is advisable to sell shares in a profitable business.

A negative scenario, which is also common in the startup industry, usually involves a total write-off (loss) and agreement to liquidate the company.

A common practice is to offer new investors additional rights during the investment agreement stage, including a preferential position in terms of fund distribution during an exit. In the final sale of a startup, this may mean that “new investors” first receive a guaranteed return, and only the remaining funds are divided among other investors. We try to avoid such situations and use all mechanisms that can protect us, including:

• Pro-rata rights – This ensures that we participate, even minimally, in each subsequent investment round, maintaining our share proportions in the company and retaining the same rights as new investors.
• Secondaries exits – These occur before the complete sale of the company and are thus not subject to liquidation preference rights.
• Advising founders to avoid agreeing to terms that are unfavorable to them, as the same mechanism can significantly impact the founders during the sale.