Early Exits

Early Exits

April 7, 2021 by investor

In setting the exit, most investors look to maximize the exit value.

It’s important to remember that the metric investors use, IRR or Internal Rate of Return, has a time component to it.

The faster the exit, the higher the IRR.

As an investor, consider pursuing the highest IRR and not just the biggest dollar exit as bigger exits take longer.

While the news highlights the biggest exits, the vast majority of exits are under $20M.

Selling a business for under $20M is not that hard.

Growing a business and selling it over $100M is very hard.

Most acquirers don’t need the business to be large, they just need to know the business model is defined and is profitable.

Staying in the deal longer opens up the investor for dilution and other events that reduce the return on investment.

A startup should be proving their business model and turning it into a repeatable, predictable process.

With funding and time, it will scale.

As an angel investor, you should look for early exits and structure your investments accordingly.


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Disclaimer:
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.

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