The 3 Exit Questions That Would Have Killed 80% of My Worst Deals
Most investors spend weeks on entry analysis — DCF models, comp tables, sensitivity runs — and about 15 minutes thinking about how they'll actually get out.
I used to do the same thing. Then I sat through three liquidations where the "exit" turned out to be a fiction written into a side letter nobody stress-tested.
Here are the three questions I now ask before committing any capital to an illiquid position. They take 10 minutes. They've saved me from more bad deals than any model I've ever built.
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1. "Who is the realistic buyer at the price I need?"
Not "who could theoretically buy this." Not "the market will be there."
Name the buyer. What's their mandate? Are they already active in this space? Would they take this position size at a price that doesn't destroy your return?
If you can't answer this in two sentences, you don't have an exit — you have a hope.
The trap: Managers love saying "there's strong secondary demand." Ask them to name the last three secondary transactions they facilitated in this exact asset class, with dates and approximate sizes. Watch how fast the confidence disappears.
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2. "What happens to my liquidity if the sponsor's next fund doesn't raise?"
Most exit timelines in illiquid structures are implicitly tied to the sponsor raising a successor fund. Fund III sells assets to return capital to LPs, partly because Fund IV's fundraise depends on showing realized returns.
If Fund IV doesn't raise — or raises at half the target — your exit timeline just doubled. Maybe tripled.
The check: Look at the sponsor's fundraising cadence. If there's a gap, ask why. If they're on Fund II with no track record of returning capital, your exit depends entirely on their ability to keep raising. That's not an exit plan. That's a prayer.
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3. "What does the WORST version of this exit look like — and can I live with it?"
Not the base case. Not the "conservative" case your analyst built (which is really just the base case minus 10%).
The actual worst case: forced sale, no bid, gate provisions triggered, redemption queue, side-pocketed assets. What's your recovery in that scenario?
If the worst-case exit destroys the entire return thesis, you're not making an investment — you're making a bet that nothing goes wrong. And in illiquid markets, things go wrong slowly enough that you won't notice until it's too late.
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The Pattern
Every bad illiquid deal I've seen shares the same DNA: brilliant entry analysis, zero exit stress-testing.
The fix isn't complicated. It's three questions and 10 minutes of honest answers before you wire capital.
That's it. That's the entire edge.
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I built a full 7-day system around this — covers structural exit risk, contractual traps, unwind depth measurement, and a Red-Amber-Green decision matrix you can run on any illiquid position. If you want the complete framework, check out the course above.