Latest / The Startup Exit Podcast with Fexingo: IPOs, Acquisitions, and Founder Liquidity Events / How Founders Use Dual-Track Processes for Exit Flexibility
Transcript
- Lucas: So last quarter, a cybersecurity startup with about fifty million dollars in annual recurring revenue quietly ran something called a dual-track process. They were simultaneously marketing an IPO and a strategic sale — and the tactic paid off. Luna: A dual-track meaning they kept both options alive at the same time? That sounds like a lot of plates to spin. Lucas: Exactly. Most founders think they have to choose: go public or sell. But a dual-track lets you run both processes in parallel, usually with separate sets of bankers. The goal is to create competition between the public market and a potential acquirer. Luna: And in this case, the founder ended up selling for twenty percent more than the highest standalone offer. That’s serious leverage. Lucas: Yeah, and it’s not just about price. The threat of an IPO can force an acquirer to move faster, waive due diligence conditions, or even structure the deal as a stock swap to defer taxes. The founder I spoke with said the IPO track made the strategic buyer realize they weren’t the only option. Luna: But that only works if the IPO is actually credible. You can’t fake it — bankers will know if you’re just window shopping. Lucas: Right. The company needs to be ready for both. That means audited financials, a strong management team, and a story that resonates with public market investors. In this case, the company had been preparing for an IPO for six months before they even started the dual-track. Luna: So the preparation cost is high. Law firms, auditors, roadshow materials — easily millions. Is it worth it for most startups? Lucas: Statistically, no. Studies show that only about one in three dual-track processes actually yields a better outcome. A lot of times, the IPO track fizzles because the market window closes or the valuation doesn’t meet expectations. But when it works, it can transform a founder’s exit. Luna: Let’s talk about the current environment. NVIDIA’s trading at around two hundred and six dollars, which says the market is still hungry for tech stories with AI angles. But a cybersecurity company might not get the same premium. Lucas: That’s a good point. The public market is selective right now. They reward companies with high growth and clear moats. Cybersecurity is hot, but you need to show consistent revenue and a path to profitability. The dual-track gives the founder a way to test that demand without fully committing. Luna: And on the acquisition side, strategic buyers like the major cloud providers are sitting on huge cash piles. They’re often willing to pay a premium for technology that fills a gap. Lucas: Exactly. The key is to keep the two tracks separate. You have different bankers, different data rooms. The acquisition team might not know the exact IPO price range, and vice versa. That asymmetry is part of the leverage. Luna: But what about the risk of leaking? If an acquirer finds out your IPO range is lower than their bid, they could lowball you. Lucas: That’s a real concern. That’s why many founders include a 'go shop' clause in the acquisition agreement — it allows them to keep soliciting other offers, including an IPO, for a set period. It’s a safeguard, but it can complicate negotiations. Luna: I remember a fintech founder who tried a dual-track a couple years ago. The IPO roadshow went well, but lead investors pushed for a down round based on macroeconomic concerns. He ended up accepting a lower acquisition offer because he had already spent the momentum. Lucas: That’s the nightmare scenario. You invest months and millions, and then the market turns. That’s why timing is everything. July 2026 — we’re in a mixed market: rates are stable but not low, and there’s geopolitical uncertainty around Chinese AI, as the headlines remind us. It’s not a slam dunk for IPOs. Luna: Yet some founders still choose this route. What do you think is the biggest factor that makes a dual-track succeed? Lucas: It comes down to founder credibility and board alignment. If the board is split between going public and selling, the dual-track often fails because there’s no clear decision maker. The most successful cases have a founder who is willing to walk away from both tracks if the terms aren’t right. Luna: Walk away from both? That takes enormous conviction — and usually a strong balance sheet. Lucas: Exactly. The cybersecurity startup I mentioned had enough cash to operate for two more years. They weren’t desperate. That gave them the leverage to run the process on their own terms. Luna: So the dual-track is really a luxury of the well-capitalized. It’s not a lifeline for a struggling company. Lucas: Right. It’s a strategy for companies that have options. And when it works, it can mean the difference between a good exit and a great one. Luna: This kind of inside look is exactly why we keep the show ad-free — listener support makes it possible for us to dig into these strategy details without commercial breaks. Lucas: Yeah, and if you find these conversations useful for what you’re building or running, you can support us at buy me a coffee dot com slash fexingo. It’s a simple way to keep this independent analysis going. Luna: Okay, back to the dual-track. One thing we haven’t touched on is the role of employee retention. How do you keep key talent motivated when the exit path is uncertain? Lucas: That’s often the hardest part. Founders I’ve spoken to recommend setting clear milestones for the dual-track process and communicating them transparently. Let employees know that the dual-track is designed to maximize value for everyone. And tying retention bonuses to the completion of either track helps. Luna: It’s a delicate balance — you want optionality, but you also want stability. Lucas: Exactly. And that’s the core tension of any exit process. The best founders navigate it by focusing on what they can control: the quality of their business, the strength of their team, and the clarity of their strategy. Luna: So for our listeners who might be considering this path, what’s the one piece of advice you’d give? Lucas: Start preparing early. Audited financials, strong legal documentation, a clear equity story. The dual-track is not something you decide to do in a month. It’s a six-to-twelve-month process that requires discipline. But if you get it right, it can be the most powerful exit lever you have. Luna: Good to keep in mind. Thanks for breaking that down. Lucas: Thank you. Next episode we’ll look at how founders use pipe investments to fill the gap before an IPO — see you then.