Since this article is about angel investors, it’s appropriate to speak here to angel investors including both individual investment angels and those participating in an angel network. At Intelliversity, we are supportive of the movement toward earlier exits (3 to 5 years) as this gives angel investors and entrepreneurs quicker feedback as to how well our strategies are performing. Feedback is the true breakfast of champions. In other words, we’re not interested in waiting 7 to 10 years to find out if our angel investment strategies, such as how we select companies to invest in and how we coach them, need to be modified. By accepting earlier exits, angel investors can also enjoy a higher rate of return on their available angel capital. From the point of view of the health of the entrepreneurial community and the economy at large, earlier exits are preferred because with earlier exits, we don’t have to invest only in companies with “home run” potential. Angel investments can be directed to singles, doubles and triples as a deliberate portfolio management strategy. With this strategy, larger numbers of companies with angel investments will succeed, there will be larger numbers of successful entrepreneurs, and larger numbers of new products and services will enter the marketplace to everyone’s benefit including the angel investors involved.
We are aware that a preference for earlier exits is a challenge both to investors involved in angel networks as well as to individual investment angels. On the positive, side, our selection criteria can be broader to include companies with that can return say 2X to 5X their angel capital investment with a quick M&A transaction rather than limit ourselves only to companies that can possibly return say 10X or 30X over longer periods. This strategy also requires angel investors to coach entrepreneurs toward the benefits of exiting quickly, by being bought out typically, and to adjust their marketing strategies so that they are attractive to potential buyers. There is a great deal more that can be said about how to achieve early exits by adjusting marketing and licensing strategy. Additional information on early exit strategy can be found in Basil Peters’ Early exits: Exit Strategies for Entrepreneurs and Angel investors (But Maybe Not Venture Capitalists).