Acquisitions and Exits
How founders turn ownership into money, what the biggest beauty and consumer brand deals actually looked like, and why most exits are nothing like the headlines.
An exit is how a founder converts ownership in a company into actual money, whether by selling the business to another company, taking it public through an IPO, or bringing in a private equity firm to buy a majority stake. This is the mechanism behind every headline about a founder becoming a multimillionaire or billionaire overnight, and it is the primary way that equity turns from a number on paper into cash in a bank account.
The reality behind those headlines is brutal. Roughly 90% of startups shut down without any exit at all, over 96% of exits happen below $100 million, and 84% of founders receive zero exit value when their company is acquired or dissolved. The billion-dollar exit that dominates media coverage represents less than 1% of outcomes, and even when a company does sell for a number that makes the news, the founder’s personal take-home is almost never the figure in the headline.
How It Works
Types of exits
The three most common exit paths are acquisition, IPO, and private equity buyout. In an acquisition, another company buys yours outright, and roughly 90% of venture-backed exits take this route. An IPO means selling shares to the public on a stock exchange, which accounts for less than 1% of startup exits. A private equity buyout is when an investment firm buys a majority stake, often with the intention of growing the business and selling it again within three to six years. Two less common paths are acqui-hires, where a buyer is primarily purchasing the team rather than the product, and management buyouts, where the company’s own leadership team buys the founder out.
The acquisition process step by step
Acquisitions follow a well-defined sequence that typically takes 90 days to six months from start to finish. The process begins with a Letter of Intent, or LOI, which is a non-binding document that lays out the proposed price, deal structure, exclusivity period, and timeline. Negotiating the LOI alone usually takes 30 to 60 days. Once signed, the buyer enters due diligence, a 60 to 90 day investigation where they verify everything the seller has claimed about the company’s finances, contracts, intellectual property, and liabilities. After due diligence, both sides negotiate the final purchase agreement, secure any necessary financing and regulatory approvals, and close the deal. Simple deals with clean financial records can close in four to six weeks, while complex transactions involving regulatory review or multinational operations can stretch to six months or longer.
How founders actually get paid
Founders rarely receive a single check for the full acquisition price on the day the deal closes. Most sellers receive only 50% to 70% of their portion of the deal upfront, with the rest distributed through a combination of mechanisms designed to protect the buyer and incentivize the founder to stay. Payment typically comes as some mix of cash, stock in the acquiring company, earnouts tied to future performance targets, and retention bonuses contingent on the founder remaining with the company for two to four years. On top of that, 10% to 20% of the purchase price is usually held in a third-party escrow account for 12 to 24 months to cover any problems that surface after the deal closes.
Key terms to know
An earnout makes a portion of the purchase price contingent on the business hitting specific performance targets after the sale, which means the founder literally has to earn part of the price the buyer agreed to pay. Escrow is when 10% to 20% of the deal value is held by a neutral third party, usually a bank, and released to the seller only after a specified period passes without indemnification claims. A liquidation preference determines the order in which shareholders get paid when a company is sold, and investors with preferred shares almost always get their money back before founders and employees who hold common stock see a dollar. A non-compete is the seller’s contractual promise not to start or join a competing business, typically lasting two to four years after the sale closes.
The Payout Math
The gap between an acquisition’s headline price and what a founder actually takes home is enormous. A founder who holds 5% equity in a company that sells for $1 billion would receive $50 million before taxes, and after federal capital gains taxes of 15% to 20%, that number drops to roughly $35 to $40 million. That 5% ownership stake is not unusual for a founder who has raised multiple rounds of venture capital, because each funding round dilutes the founder’s share: typical dilution runs 15% to 25% at the seed stage, another 20% to 30% at Series A, and further dilution with every subsequent round. A founder who started with 100% ownership commonly holds 18% to 25% after a Series B and single-digit percentages by the time a late-stage exit happens. Liquidation preferences compound the problem, because investors with preferred shares get their investment back first, which means at lower exit prices the founder may receive nothing at all even though the company technically sold.
Examples
What majority ownership is worth
IT Cosmetics is the clearest illustration of what happens when a founder retains majority ownership through an exit. Jamie Kern Lima held the majority stake when L’Oreal acquired the brand for $1.2 billion in 2016, and she personally took home approximately $410 million after taxes, making her the first female CEO of a L’Oreal brand in the process. Spanx tells a similar story on an even longer timeline: Sara Blakely founded the company with $5,000, never took a dollar of outside investment for 21 years, and owned 100% of the business when Blackstone acquired a majority stake at a $1.2 billion valuation in 2021. Because there were no investors holding liquidation preferences and no dilution from funding rounds, Blakely’s share of the deal was the largest it could possibly have been.
When investors take most of the exit
Drunk Elephant sold to Shiseido for $845 million in 2019, a number that suggests founder Tiffany Masterson became extraordinarily wealthy. She took home an estimated $120 million, roughly 14% of the total deal value, because she had brought on minority investors who held significant equity in the company. The $845 million headline was real, but the vast majority of that money went to investors, not to the woman whose name was on the brand.
The IPOs that destroyed value
Bumble debuted on the public market in February 2021 at a $7.7 billion market cap, making founder Whitney Wolfe Herd a billionaire on paper with her 12% stake worth roughly $1.6 billion. By 2025, the stock had collapsed 95% from its peak, the company’s market cap had shrunk to around $310 million, and Wolfe Herd’s net worth had fallen to an estimated $100 to $510 million. The Honest Company followed a similar arc: Jessica Alba’s stake was worth $130 million when the company went public in May 2021 at a $1.44 billion valuation, but the stock declined steadily and the company’s market cap sat at roughly $330 million by early 2026, with Alba stepping down as Chief Creative Officer in 2024. Casper went public in February 2020 at a $490 million valuation, already a 56% haircut from its $1.1 billion private valuation, never posted a profitable quarter, and was taken private by a PE firm at $286 million, roughly a quarter of its IPO price.
The Rhode deal: the new template
Rhode set a new benchmark for celebrity brand exits when e.l.f. Beauty announced a $1 billion acquisition in May 2025. The deal structure included $800 million in cash and stock upfront, with an additional $200 million earnout based on Rhode’s performance over the next three years. Hailey Bieber stays on as Chief Creative Officer and Head of Innovation, maintaining creative control, and the brand will expand into Sephora stores across the US, Canada, and the UK. What makes this deal notable is what Rhode accomplished before selling: the brand went from zero to $212 million in net sales in under three years while selling DTC only, with only 10 products. The deal also shows how earnouts work in practice, because $200 million of Bieber’s total payout depends entirely on the brand continuing to perform after the acquisition closes.
The acquisition that became a cautionary tale
Kylie Cosmetics looked like a triumph when Coty paid $600 million for a 51% stake in 2019, valuing the company at $1.2 billion. The problems started almost immediately: Forbes accused Jenner of inflating revenue figures, reporting that Kylie Cosmetics had generated $177 million in verified revenue rather than the $360 million that had been publicly claimed. Seed Beauty, the brand’s manufacturer, sued Coty and Kylie Cosmetics for sharing proprietary trade secrets during the acquisition process. By 2023, Jenner was publicly expressing frustration with how Coty had managed the brand and exploring the possibility of buying back the stake she had sold for $600 million.
The acquisition that became a growth engine
Sol de Janeiro demonstrates what happens when a strategic buyer actually accelerates a brand. L’Occitane acquired an 83% stake in 2021 at a $450 million valuation, when the brand had roughly $60 million in annual revenue. Under L’Occitane’s ownership, Sol de Janeiro’s revenue grew 167% in a single fiscal year and the brand became the parent company’s primary growth driver, contributing significantly to L’Occitane’s total group revenue of $2.72 billion. Charlotte Tilbury tells a similar story: Puig acquired a majority stake for approximately £1.3 billion in 2020, and the brand has more than tripled its net revenue since the deal, with Puig set to assume full ownership in 2031.
What People Get Wrong
“Getting acquired means you’re rich.” The acquisition price and the founder’s payout are two completely different numbers. Earnouts mean part of the price has to be earned after the sale. Escrow holds back 10% to 20% for up to two years. Liquidation preferences mean investors get paid first. Federal capital gains taxes take 15% to 20% of what remains, and earnouts classified as compensation rather than purchase price are taxed at ordinary income rates as high as 37%. Tiffany Masterson took home $120 million from an $845 million deal, which means $725 million of the Drunk Elephant acquisition went to other stakeholders.
“A billion-dollar valuation means the founder has a billion dollars.” A founder who owns 5% of a billion-dollar company has $50 million in equity, before taxes and before liquidation preferences. After multiple funding rounds, founders commonly hold single-digit percentages after dilution, and the gap between a company’s total valuation and the founder’s actual ownership stake is almost always larger than people assume. Over 96% of all startup exits happen below $100 million, and the economics of a founder’s life do not require a billion-dollar exit even though the economics of most VC funds do.
“You should always try to get acquired.” A profitable business generating $500,000 per year with no investors, no board, and no dilution will produce $5 million over a decade with the founder keeping nearly all of it. That same founder could spend a decade chasing a VC-funded exit, dilute down to single-digit ownership, and end up with less money and less control. The average time from founding to exit is 7.5 years, and 90% of startups never exit at all. For many founders, especially those building lifestyle businesses or bootstrapped companies, a profitable business that pays well year after year is the better financial outcome.
“An IPO is the finish line.” An IPO is the beginning of a new set of problems: quarterly earnings pressure, public scrutiny, lock-up periods that prevent founders from selling shares for 90 to 180 days, and a stock price that can collapse at any time. Bumble lost 95% of its value after going public. Casper went public, lost money, and was taken private at a quarter of its IPO price. The Honest Company lost more than three-quarters of its peak market cap. The IPO created paper wealth that the market took back.
Frequently Asked Questions
What is an acquisition?
An acquisition is when one company purchases another company, gaining control of its products, employees, intellectual property, and customer base. The buyer pays the shareholders of the target company in cash, stock, or a combination of both. Approximately 90% of venture-backed exits happen through acquisition rather than IPO, and acquisitions of venture-backed companies exceeded $100 billion in the first half of 2025, a 155% increase year over year.
How do founders get paid in an acquisition?
Founders typically receive 50% to 70% of their share of the deal in cash or stock at closing, with the remainder distributed through earnouts (tied to future performance targets), retention bonuses (typically 20% of the founder’s total deal value, contingent on staying two to four years), and escrow releases (10% to 20% held back for 12 to 24 months). If the deal is structured as a stock sale, the founder’s proceeds generally qualify for long-term capital gains treatment at 15% to 20%, but earnout payments tied to continued employment may be taxed as ordinary income at rates up to 37%.
What is an earnout?
An earnout is a contractual provision that makes a portion of the acquisition price contingent on the business meeting specific performance targets after the sale closes. For example, e.l.f. Beauty’s acquisition of Rhode included $800 million upfront and a $200 million earnout based on three years of performance. Earnout periods typically last one to three years, and between 40% and 65% of M&A deals include some form of earnout provision. The tax treatment depends on whether the earnout is classified as deferred purchase price (capital gains, 15% to 20%) or compensation for services (ordinary income, up to 37%).
How long does it take to sell a company?
The acquisition process from initial conversation to closing typically takes 90 days to six months. Negotiating the Letter of Intent takes 30 to 60 days, due diligence runs 60 to 90 days for most deals, and the documentation, financing, and closing period adds another 30 to 60 days. Simple deals with clean records can close in four to six weeks, while complex deals involving regulatory approvals, multinational operations, or significant intellectual property portfolios can take six months or longer. The average time from founding to exit is 7.5 years, with consumer companies exiting faster (median of seven years) than SaaS companies (median of ten years).
What percentage of startups get acquired?
Only about 1.4% of startups on Carta were acquired in 2023, and roughly 5% of seed-funded startups are acquired within five years. About 90% of startups eventually shut down without achieving any exit. Of the companies that do exit, approximately 90% exit through acquisition and less than 1% through an IPO. The odds of a startup being acquired for $1 billion or more are less than 1%.
How much do beauty brands sell for?
Beauty brand M&A multiples averaged 14.9x EV/EBITDA in 2025, more than five turns higher than the Consumer industry average of 9.8x. Revenue multiples for premium beauty deals have reached 9x to 14x for brands with strong positioning and global expansion potential, and buyers have stretched to 20x EBITDA for brands with clinical validation, high repeat purchase rates, and international scalability. Notable beauty exits include IT Cosmetics at $1.2 billion, Rhode at $1 billion, Drunk Elephant at $845 million, Kylie Cosmetics at a $1.2 billion implied valuation, and Charlotte Tilbury at approximately £1.3 billion.
What are the tax implications of selling a company?
If the acquisition is structured as a stock sale and the founder has held shares for more than one year, proceeds generally qualify for long-term capital gains at 15% to 20%, plus a potential 3.8% net investment income tax. Earnout payments classified as deferred purchase price also receive capital gains treatment, but earnouts conditioned on future employment are taxed as ordinary income at up to 37%, plus payroll taxes. The difference between capital gains and ordinary income treatment on a $10 million earnout can mean $1.7 million in additional taxes. Founders who filed an 83(b) election early in the company’s life are significantly better positioned for favorable tax treatment at exit.
What is a liquidation preference?
A liquidation preference is the contractual right of preferred shareholders, typically venture capital investors, to receive their investment back before common shareholders receive any proceeds from a sale. In a 1x liquidation preference, investors recover the full amount of their investment before founders and employees get paid. If a company raised $20 million with a 1x liquidation preference and sells for $25 million, investors receive their $20 million first, and only $5 million is left for everyone else. At lower exit prices, liquidation preferences can wipe out the founder’s payout entirely, which is why 84% of founders receive zero exit value.
What happens to employees after an acquisition?
Employee outcomes after acquisitions are statistically grim. Average employee turnover after a merger is 47% within the first year and 75% within three years, with acquired startup employees experiencing 33% to 34% attrition in the first year, nearly three times the 12% rate among standard hires. Remaining employees often face role changes, benefit transitions, increased workloads, and integration into the acquirer’s organizational structure. About 30% of post-acquisition retention failures are attributed to differences in company culture between the two organizations.
What is the difference between a strategic buyer and private equity?
A strategic buyer is an operating company in the same or adjacent industry that acquires a business for synergies, market access, or talent, and they account for roughly 70% of all M&A deals. A private equity firm is a financial buyer that acquires companies using a combination of equity and debt, improves their operations, and resells them within three to six years for a return. Strategic buyers typically pay higher prices because they can capture synergies from combining the businesses, while PE firms are more disciplined on valuation because their returns depend on buying at the right price. For founders, the key difference is that strategic buyers usually integrate your business into their own (which means losing autonomy), while PE firms often partner with existing leadership and allow the founder to retain a minority stake for a potential “second bite” when the company is sold again.
Can a founder buy back a company after selling it?
It happens, but rarely successfully. Kylie Jenner explored buying back the 51% stake in Kylie Cosmetics that Coty acquired for $600 million, driven by frustration with how Coty managed the brand after acquisition. The challenge is that a buyback requires the founder to purchase shares at whatever the buyer demands, which may be higher or lower than the original sale price depending on how the business has performed. The dynamics are almost always unfavorable for the founder, because the buyer has no obligation to sell and can set terms that reflect the original investment plus a required return.
Sources
- CB Insights, “The Venture Capital Funnel”. Startup exit rates, funding funnel analysis, and failure statistics.
- Kruze Consulting, “How Much Cash Does a Founder Really Receive When They Sell?”. Founder dilution data, payout mechanics, and post-tax calculations.
- Crunchbase, “How Long Does It Take a Startup to Exit?”. Time-to-exit data by industry and funding stage.
- Crunchbase, “Your VC Needs a Billion Dollar Exit. You Do Not.”. 96% of exits below $100M statistic and VC incentive misalignment.
- Capstone Partners, “Beauty M&A Update,” December 2025. Beauty sector M&A multiples and deal activity data.
- WWD, “Shiseido Acquires Drunk Elephant for $845 Million,” 2019. Drunk Elephant acquisition details and Masterson’s estimated payout.
- CNBC, “Jamie Kern Lima Went from Bagging Groceries to Building IT Cosmetics,” 2018. IT Cosmetics deal and Kern Lima’s $410M post-tax payout.
- FashionNetwork, “Charlotte Tilbury Sales Soared in 2020, Sale Price to Puig Was £1.3bn”. Charlotte Tilbury deal price and post-acquisition revenue growth.
- CNBC, “E.l.f. Beauty to Acquire Hailey Bieber Brand Rhode in $1 Billion Deal,” 2025. Rhode deal structure, $800M cash and stock plus $200M earnout.
- Fortune, “Kylie Jenner Explores Buying Back Control of Kylie Cosmetics from Coty,” 2023. Kylie Cosmetics post-acquisition developments.
- Blackstone, “Blackstone Buys Majority Stake in SPANX, Inc.,” 2021. Spanx deal details and Blakely’s 21 years of sole ownership.
- Fortune, “Bumble IPO Makes CEO Whitney Wolfe Herd a Billionaire,” 2021. Bumble IPO performance and subsequent stock collapse.
- Celebrity Net Worth, “The Bumble Stumble,” 2025. Bumble 95% stock decline and Wolfe Herd’s net worth trajectory.
- Hollywood Reporter, “Jessica Alba Sees Nine-Figure Windfall as The Honest Company Goes Public,” 2021. Honest Company IPO details and Alba’s stake value.
- Fast Company, “Casper Is Going Private Again, at a Quarter of Its Original IPO Price,” 2021. Casper IPO and privatization cautionary tale.
- L’Occitane Group, “L’Occitane Acquires Majority Stake in Sol de Janeiro,” 2021. Sol de Janeiro $450M acquisition and revenue growth.
- 1Mby1M, “The Myth of the Billion-Dollar Unicorn”. 96% of exits below $100M and 84% of founders receiving zero exit value.
- WTW, “2024 M&A Retention Study”. Employee turnover statistics after mergers and acquisitions.