Investor playbook
Exits & continuation funds
📖 11 min read · 🎯 GPs · year 4+ · Updated April 2026
Most early-stage investors think about exits too late. The fund returns of the next decade will be shaped by GPs who plan for liquidity in year 4, not year 9.
The exit corridor
Each portfolio company has a realistic exit range and timeline. Map them at year 3 of the fund:
- Strategic acquirers — list 5 by name. What metric makes each one buy? At what valuation?
- PE / growth funds — for cash-flow positive companies. EBITDA multiples, not revenue multiples.
- IPO — increasingly rare for venture exits. Need ~$200M ARR with 30%+ growth in 2026 markets.
- Secondary sale — to growth funds, secondaries platforms, or new entrants in your cap table.
Secondary sales — the underrated tool
Selling part of your position before the company exits. Increasingly common at Series B+ when valuations are high but liquidity is low. Three approaches:
Tender offer
Company-organised event where existing shareholders sell a fixed % to a new investor. Clean. Tax-efficient (long-term capital gains in many jurisdictions). Founder-supported. If you can sell 25–40% of your position via tender at year 5, you've de-risked the fund significantly without losing upside.
Direct secondary
You sell to a specific buyer — often a growth fund coming into the cap table. More negotiation; less standardised pricing. Use when company isn't running a tender.
Secondary platform
Platforms like Forge, Hiive, or Setter match private-company sellers with buyers. Faster but typically at a 15–25% discount to the last priced round.
The "sell some, keep some" rule. Selling 30% of your position at $50M valuation and keeping 70% in case it goes to $500M is mathematically better than holding 100% to find out — in most cases. It also gives you DPI (cash returned to LPs) which is what your future LPs care about.
GP-led continuation funds
One of the fastest-growing parts of the secondary market. The mechanics:
- Your fund (Fund I) is at year 8. You have 4 winners that aren't ready to exit.
- You raise a new vehicle (Continuation Fund) with new LPs to buy those 4 positions out of Fund I.
- Fund I LPs choose: take cash now, or roll into the new vehicle.
- You continue to manage the assets with a new fee/carry structure.
Done well, this gives Fund I LPs liquidity, gives the winners more time to compound, and gives you continued upside. Done badly, it's a conflict-of-interest minefield.
What to consider 2 years before any exit
- Tax structuring. Long-term vs short-term capital gains, qualified small business stock (QSBS in US), 80-IAC in India. Talk to tax counsel before the offer arrives.
- Cap-table cleanup. If the company has 200 angels and 9 SAFEs, an acquirer's diligence will take months. Help simplify.
- Founder retention. Most acquirers ask for 2–3 year founder lockups. If your founders are burned out, the deal gets harder.
- LP communication. When liquidity arrives, LPs want clarity quickly: how much, when, what the tax impact is. Plan the comms doc 6 months ahead.
The unsexy truth about exits
The exit you actually get is rarely the one you imagined at investment. The discipline is to:
- Take liquidity when it's offered, in size that meaningfully de-risks the fund.
- Don't fall in love with a position. The math is the math.
- Protect founder optionality — don't push for an exit just because your fund clock is running.
- Communicate honestly with LPs. The IRR you don't realise is fictional.
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