What About the Exit?
So you got your friends, family and even some angels believing in you to invest in your startup. But what if it takes a bit longer than anticipated to make it a success? Wouldn’t it be nice to have a mechanism for the early-stage private investors to make a partial exit?
Many people believe that having a possibility to exit a private investment withing 3 years would greatly accelerate the willingness to invest. The effect would probably be much greater than any of those planned tax breaks. Tax breaks are useful, after all, only after making an exit.
Why should you, as an entrepreneur, worry about the exit strategy of your private investors?
Aren’t there already enough challenges of your own?
There are quite a few things that make this important aspect to think about.
Well, at least to think about whether it concerns you or not.
According to the research done in USA, and explained in an understandable form in the book “Fool’s Gold – The Truth Behind Angel Investing in America”, a typical angel investor differs quite a lot from the public image. There’s also a video interview about the book (in Finnish).
It can be assumed that the “typical angel investor” in Europe has about the same profile than in the US.
According to the research, a typical angel investor in USA, is as compared to the “public image”
- less wealthy
- younger
- often NOT an ex-entrepreneur
- less experienced
Additionally the number of private investors not classified as “angel investor” officially is about six times bigger than just angel investors!
What does this mean for you?
Those private investors you as an entrepreneur are looking after are different than you think. They invest smaller amounts and would like to see some alternate opportunities to sell their shares than just the final exit. It can take ten years for the exit to happen, and they might want to harvest these investments within 3-5 years.
What possible exits do the early stage investors (like your mam) really have at the moment? No so many.
- IPO (Initial Public Offering). Well, quite rare occassion. Don’t count on this one.
- Trade Sale. This one is possible, happens once and a while, but can take much more than 3 years for this one to happen.
Some services like Privanet in Finland, SharesPost, SecondMarket and Nyppex in the US are already offer marketplaces for private shares. They are often geared at later stage companies or certified investors.
There is great effor to offer different incentives and services to make private persons (or in some cases only ”angel investors”) to invest in startups. Some of the most interesting services include Investiere in Switzerland and Venture Bonsai in Finland.
There seems to be almost no discussion on the exit side. Private investing in startups will only really boom after there’s going to be an aftermarket for the shares.
What do you think about this?
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