Hello, this is Hall T. Martin with the Startup Espresso — your daily shot of startup funding and investing.
Today, we’ll talk about how to achieve an exit in a startup investment.
It’s easy to get into a startup investment, but difficult to get out — especially with a positive return.
Most startup exits come when they sell the business to another company or go public on the stock exchange.
It takes seven to ten years to achieve an exit in most cases.
Most investors let the startup define the exit. If they do, that’s great.
If they don’t, then you define an exit for your investment.
I recommend using a convertible note that has a 3X in 3 year redemption right at investor sole discretion. This provides you the option of exiting at the 3-year mark, or staying in for the long haul.
By year 3 it becomes clear where the startup is headed. They are either on the venture path to larger returns, or they have left the venture path and moved into payroll mode.
The problem with leaving the venture path is that most terms sheets give the investor an equity stake. If the company leaves the venture path and turns into a lifestyle business, then the equity is going to be worth, at most, a small return typically around the 10-year mark.
Define the exit you want and make an offer. Not all startups will take it, but many will.
Thank you for joining us for the Startup Espresso where we help startups and investors connect for funding.
Let’s go startup something today.
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Copyright (c) 2020, Hall Martin and investorconnect.org. All rights reserved.
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.