Investors should gain alignment with the startup about the exit before making the investment.
This includes the size and timing of the exit.
There needs to be some clear thinking and research about who will buy the company and how much they will pay.
The investors and the startup need to work together to achieve the exit.
One of the biggest impacts on the exit for early-stage investors is follow-on funding.
It’s important to gain alignment on the subsequent financing rounds required and the impact it will have on the early investors.
It’s often the case the startup is overly optimistic and comes back later asking for additional funding.
Also, discuss the path to achieve the exit – will the company grow organically or will it push aggressively for growth?
It’s important to maintain communication about the exit strategy and discuss how the company is on track for it or not.
Follow-on funding brings terms and valuations that can diminish the early investor’s position and ultimate exit.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
Let’s go startup something today.
Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.