Reading up on it, I know VCs are not keen on investing in service businesses. But, angel investors are more likely to invest in a service business startup. So I'm curious, what type of exit strategy do angel investors prefer? In an ideal world, I would like to keep the business (not sell it) and keep it as a private corporation, no public shareholders to answer to. That's the goal, but might change . Thanks.
Take for example that I am an Angel Investor in your company. As an angel investor, I first look at the horizon and the projected ROI (return on investment). In general, I hold an investment from 3 to 5 years and expect to cash out and make a profit at the end of this period. Hence, I am very unlikely to invest in a start-up that forecasts an exit event in more than 5 years. The exit route has a direct impact on the projected ROI as it is not equal to sell a business to a competitor, plan an IPO or sell part of the company to a venture capital fund. First, I asked myself who would be interested in buying the company and why. A potential buyer may be interested in acquiring
(i) the user base,
(ii) the technology and (iii) the brand, as the Diversity & Inclusion solutions are built around it. Also, there are different exit routes that could be followed.
1. M&A Route: This exit strategy is built around a potential sale to
(i) a competitor or
(ii) a business partner offering complementing products or services.
2. VC Route: In this case, a stake of a company can be sold to a venture capital fund. A VC may be interested if there are obvious synergies with other portfolio companies or the expected return on investment is lucrative in their eyes. What if they can grow the company exponentially and list it in 2-3 years?
3. IPO Route: A well-executed IPO at a high valuation means one thing a skyrocketing return on investment for the founders and early investors. It is not easy to achieve, though. Looking at Crunchbase stats, it takes 9 years on average for a SaaS company to exit. The cost of an IPO is also considerable and the combination of all the above makes it the least preferred exit route in this case.
When developing an exit strategy, start-up founders need to take into consideration the profile of the investors they will be pitching. What is their horizon? Will they be interested in subsequent funding rounds? What were the exit routes of some of their portfolio companies? What was the ROI they managed to achieve so far? Few investors will jump from joy if the forecasted return on investment is well below the average ROI they have managed to achieve so far.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Answered 3 years ago
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