Exiting is the last phase of the managerial process. It’s something very relevant because in exiting the PEI is able to generate, or not, a capital gain. A capital gain means IRR, it means a profit. It's really crucial. Going back to lesson one, we said that exiting is very difficult. It's very difficult because PEI are completely different from public equity investors. Public equity investors have the possibility to use the stock exchange. PEIs have a huge problem of pricing and liquidity. It's very important to understand what the options are on the table to exit. The surprise is that there are not a lot of options on the table, because we basically have five different options on the table where one of the five is very bad. The first option is represented by the trade sale. The second one is represented by the buy back. The third one is represented by the IPO. The fourth one is represented by the sale to another PEI. And number five is represented by write off. That means write off, something very bad. So there are five options where one of the five honestly is not an option, it’s something we want to avoid. Let's start with the first one. The first one is trade sale. The definition of trade sale is easy, because trade sale means to sell the shares to another entrepreneur or company. The concept is very simple, but it’s very difficult to be applied in the real world. Why? Because in many cases entrepreneurs don't want the PEI to sell to another entrepreneur. What’s the reason? The first entrepreneur doesn't want to share his or her company with another entrepreneur. In many cases of investment of PE the entrepreneur wants the PEI to sign a contract where trade sale is not possible. If we have a look at best practices in the market, trade sales are very common in two cases. The first one is leverage buy out. Why is it very common? Because the PEI has the possibility to sell 100% of the shares. The second case is then when the PEI has drag-along rights. When the PEI has drag-along rights, it, again, has the possibility to sell 100% of the shares. To be honest, also in PIPEs where the PEI is going to invest in a listed company. In this case, in a certain sense, it’s much easier to run a trade sale because the company is listed in the stock exchange. The second option is represented by the buy back. Buy back is very simple and very popular. What’s the concept of buyback? In the buy back it’s the entrepreneur him or herself that is going to buyback the shares from the PEI. For this reason one of the most popular covenants is represented by puttable shares. Puttable shares means the PEI has the possibility to sell its shares to the entrepreneur. It's a very common. The only issue we have, simple, obvious, but we have to stress, it's represented by the fact that, to manage a buyback, the entrepreneur must have the right liquidity to do so. One of the risks for the PEI is to sign a covenant with a put option. The entrepreneur is happy. To sign a contract, but in the very moment when the PEI is going to use the put option, the entrepreneur doesn't have enough liquidity. That means the negotiations start, for example, to reduce the price or to add the entrepreneur to receive money to pay, that means to buy back the shares. The third option is represented by the IPO or by the sale after the IPO. Honestly it's something every PEI dreams of every night because with an IPO, the PEI is going to maximize its capital gain. But we have also to be pragmatic because statistics say that for every 100 deals of PE, every 100 exits, only one happens through an IPO. So a IPO is fantastic, you maximize the capital gain, but it's very difficult because to organize an IPO means to have the right alignment of stars, because the stock exchange has to fly. The company has to be ready for the stock exchange. The business of the company has to be glamourous enough to be accepted by the stock exchange, the entrepreneur has to be the right person to be able to work with investors in the stock exchange. It's a very difficult combination. It becomes, in a certain sense, a bit more common when there is a bubble. Going back to 2000 or 2005 when the stock exchange was flying., obviously, in that very moment, there were a lot of IPOs because there was a bubble. If I stay out from the idea of a bubble it's a very hard job even though fantastic to run an IPO. Option number four is represented by the sale to another PEI. In this case, the PEI is going to sell to another PEI. What's the idea? The idea is based on the concept of the life cycle that we learned before. Let's imagine a venture capitalist is going to enter in a startup, the company's growing, and the venture capital investor to exit, sells its shares to a PEI that wants to finance the company in the expansion phase. So basically this concept is based exactly on the concept of life cycle. It's very common, for example, in very efficient and well organized markets of PE, like the United States, even if it's not so easy to sell to another PEI, because the two PEIs have different ideas, because the first one wants to maximize the value of the exit, that means the capital gain, while the other PEI wants to buy it at a very cheap price because it too wants to maximize the future capital gain. Negotiation between two PEI means something that is not very easy. It’s a very tough story. Lastly, option number five, honestly, is not an option. It’s something PEI don't dream of like an IPO, but it is something that can happen. It’s the write-off. A write-off means canceling the value of the stake. When does it happen? It happens when the company defaults. For example, in a seed financing and startup financing there could be a default because of the financing of the company could be very risky, or the business plan could be very aggressive. The risk of the fault is something concrete. In this case there is not an exit. The PEI has to cancel the value of the stake. To cancel the value of the stake doesn't mean necessarily minus 100% of IRR because the PEI can try to sell some assets, for example brand, if there is a brand name of the company. In this way the PEI tries to mitigate the amount of losses that happen.