The term “exit” from the viewpoint of startups occurs when an investor decides to quit their stake in a company. If an investor “exits” then there are two scenarios: either the investor will have a profit or a loss and it also means the sale of the company that you have invested in either may be directly to a new investor through an IPO, private company, public company, or a private equity firm. All you need to find is a buyer to take the entire company and you don’t need just to sell your shares in the liquid market. As a matter of surprise, these types of exits don’t occur all of a sudden, they typically require some years of work related to market positioning and planning.
Angel Investors and their Exits
Exit Strategy for Investors
In most of the studies, a professionally constructed angel portfolio on an annual basis can get a return of 27% plus. There is no perfect approach when we talk about the perfect time to exit or the right exit strategy. Angel investors consider the circumstances of the venture, return on investment, market scenario and accordingly make a decision. Though there is no secret formula for an exit, angel investors focus on making successful exits and making maximum returns on their investments.
Angel Investing Returns
When you make angel investments, you are putting money into the risk asset class, and your overall objective is to get better returns. To convert a risky portfolio of angel investments into an asset that enables an excellent reward profile for the investor, early exits are an extremely important part of the financial reward. Surprisingly not all companies focus on early acquisition, so it becomes important to analyze before you invest.
Let us understand some of the features that make an enterprise consider an early exit:
- An innovative product that complements an aggressively growing company’s product line
- A disruptive product that has the huge potential to compete and exceed a larger company’s market position
- A product that fills a growing and emerging gap in the company’s product line
- A new product with patents that any buyer cannot risk fall into the hands of the competitor
- A new business model or technology that is robust and trendy means that the opportunity to get goodwill for the brand is irresistible
- A new product, that is constrained by sales initiatives and which can be instantly sold and can be profitable in the hands of a more capable salesforce
Let us now understand some of the advantages of an exit for angel investors:
- The moment angels get money back, they can re-invest it and it allows them to manage the risk effectively
- If an angel investor gets a 3X on the original investment, they can consider taking the original single investment and put it across multiple investments which will enable them to hedge the risk.