The final step in the life cycle of investing is harvesting. Exit plan or harvesting can be a contentious topic between investors and founders. It needs to be determined and agreed upon right from the start when to exit the business. Without this understanding, the investor could remain involved and have their capital tied up for much longer than anticipated. In one article, the author states, “But for many other companies, there are plenty of good reasons to stay private, whether that’s to maintain independence, continue to deliver on your vision, or better serve your customers. (Eghbal, 2014).” These are the reasons for keeping a company private, according to Nadia Eghbal at collaborativefund.com. There is an emotional attachment between the business and the founder. Because of the emotion involved with a founder, it can be difficult for investors to capitalize on their investment until the founder exits. In addition to the emotional attachment of the founder, “half of all companies keep going up after you sell. (Amis and Stephenson, Pg 287) .” The difficulty of deciding when to exit could delay an exit. Since most investors have minimal control of the company, they can influence the exit plan of the company, but cannot control when the exit plan occurs.
According to another article, “There is growing concern amongst angel investors that exits have become harder to achieve since the technology crash of the early 2000s (Wadell,2013) (Mason and Botelho, 2016).” The dot com boom leads to many startups, and things were happening quickly. Since then, there is reason to believe that more entrepreneurs are not ready to let go of their startup.
Lack of harvesting leads to additional problems in the angel investment community. According to the same article, “The low rate of exits is attributed by (Gray 2011) to the failure of the angel community to build the exit into their investment appraisals. (Mason and Botelho, 2016).” Angel groups must show a turnaround. Other entrepreneurs depend on their investments to fuel the growth of their businesses as well. Although the founder may look at the company as their “baby,” there are many other individuals that have a stake in the game. They also need to be considered.
I could certainly understand both sides of the argument. The entrepreneur has invested many hours of their life in their project. The investor would like to gain a profit and possibly move on to the next project. If I were to be considered by an investor, I would make sure to discuss their opinion on an exit plan upfront.
Amis, D. and Stevenson, H., (2001) Winning Angels the 7 fundamentals of early stage investing, Pearson Education Limited, ISBN 0 273 64916 7
Eghbal, N. (2014), Why Wouldn’t a Founder Want to Exit, collaborativefund.com, https://www.collaborativefund.com/blog/why-wouldnt-a-founder-want-to-exit/, Retrieved on 6/20/2020
Waddell, J (2013), Evidence. In: Official Report of the Scottish Parliament Economy, Energy and Tourism Committee, 35th meeting, session 4, column 3697, 11 December.
Gray, N (2011), Present business angel thinking on exits. Unpublished report for LINC Scotland, Glasgow.
Mason, C. and Botelho, T. (2016), The Role of the Exit in the Initial Screening: The Case of Business Angel Syndicate Gatekeepers, Sage Journals
Master of Entrepreneurship Website for Mike Weimar 