How Blockchain Helps Build a Successful Exit Strategy?

 

Having an exit strategy is not usually the first thing you think about when kicking off your private business. However, when you decide to leave or cash out, your business can be emotional and overwhelming, so having a solid exit path in place helps ensure a successful transition. 

Business owners and early investors may opt to get out of their business/VC investment for several reasons. But not necessarily they sell because it’s no longer profitable. Not surprisingly, implementing a great exit strategy and delegating responsibilities to others are sometimes the best solutions to make the business grow. 

Keeping the business indefinitely subjects its founders and other stakeholders to ongoing risks, from economic downturns to structural changes within the startup’s industry niche. As the project grows, it may be difficult to make constant adjustments to deal with the fast pace of an ever-changing business environment.

So a proper exit strategy requires due diligence which is crucial because it makes early investors calculate what it takes to retrieve their initial investment and possibly profits. Additionally, this also provides them mental peace and is an integral part of their risk management kit. 

An initial public offering (IPO), which involves selling part of your business in the public markets, has been the most common exit strategy that yields financial benefits. In other cases, raising fresh capital through private funding rounds are the alternative exit path, and widely considered a rational step for the next stage of growth. 

Many entrepreneurs, however, experience various obstacles when they decide to sell part of their equity rather than continue on with full control. Barriers to exit also prevent early-stage funders from getting rewarded for the risk they took. Typical obstacles to exit include highly specialized assets, which may be challenging to sell or relocate, and high IPO costs.  

In addition, many of high-growth companies prefer to stay private for much longer as they don’t find compelling reasons to go public. They are also understandably reluctant to part with their brainchild, particularly on terms they deem unfavorable.

Convergence bridges the gap

This is not a technical necessity, though, and creative blockchain firms like Convergence have stepped in to solve this puzzle. The new model employs a decentralized interchangeable asset protocol dedicated to bring real-world assets and investment-grade assets into the DeFi arena through tokenization and fractionalizing assets.

With Convergence, you have the flexibility to tokenize any asset to access DeFi liquidity pools. Even illiquid assets, such as unicorns or exotic stocks, could be locked in DeFi protocols.

Furthermore, even though the scarcity and uniqueness of some crypto assets, such as non-fungible tokens, have been a main focu, there is a lack of liquidity that has limited access to a wider audience.

Convergence's automated market maker (AMM) protocol makes real-world asset exposure interchangeable in the DeFi space through connecting novel Wrapped Security Tokens, aka WSTs, with utility tokens on a single interface.

A wrapped token stands for an asset hosted on the Ethereum netwrok with a price that is the same as another traditional or crypto asset. This allows for the representation of assets held in reserve to move across different crypto blockchains by acting as a type of bridge. 

Blockchain technology solves pain points 

According to a business owner survey, more than 80 percent of successful entrepreneurs have no written exit strategy, even though only less than 10 percent of them want to stay in their businesses forever.

Tapping into the blockchain technology means avoiding a lot of the red tape and complex processes of floating in a public market or raising private equity investment. It also helps generates consistent cash flow over the startup’s lifespan without requiring much capital. 

In other words, the technology that underpins cryptocurrency and its innovative applications, such as DeFi, allow seed stage startups to secure a steady, reliable income stream instead of a large lump sum, and this is a good exit plan. 

One would argue that entrepreneurial ventures are slowly abandoning the venture capital ship, and going for the bigger and easier tokenization market to raise funding from, which in some cases far exceeds what VC funds would invest. 

Convergence and similar AMM protocols help provide immediate liquidity, as well exit path, to early shareholders, and allows them to continue their business as a private enterprise. This exit strategy is unique in that it doesn’t force a change of ownership, yet provides a seamless transition for all stakeholders.

The innovation in the DeFi space continues to introduce enhanced versions of fundraising and yield-generating opportunities where you do not need trust anyone anymore. 

Once the decision to pursue a divestment has been taken, the blockchain technology not only helps you move on and find new investments, but will make your future entrepreneurial success easier as well.