The current round of financing has to last long enough to learn whether the company should fail fast, seek an early exit, become cash-flow positive, or raise more money on favourable or unfavourable terms. The greatest sin is to continue to pour money into a company that is going nowhere and eventually fails after several rounds of financing – it’s far better to learn quickly and fail fast (see exit timeline figure on page 93).
Distribution of Exit Values
25
20
15
10
5
0 < $1M $1–2M $2–5M $5–10M $10–20M $20–50M $50–100M $100–200M > $200M
Source: Wiltbank , Returns to Angels in Groups, 2015
The general expectation is that your investee company should triple in valuation before seeking either an exit or the next round. So, if your group invests $500,000 for 25% of the company (post-money value = $2 million), then the company should get to a new pre-money value of around $6 million. It will then be well-positioned for either an early exit (over 45% of all successful exits are for less than $10 million) or an average Canadian Angel follow-on round of $1.2 million, with a pre-money value of $5.6 million. At these deal sizes, Angels may syndicate with, or start to see some competition from, early-stage VC funds, or even larger Series A funding from VCs. Being proactively involved in helping your investee company to hit these valuation targets and find the right exit or next-round investors helps to reduce dilution and generate above-average investment returns. For example, it is uncommon for companies to grow from “seed to Series A” without requiring a bridge round. In many cases, this bridge round requires additional investment from the Angels or deal syndication partners (see section 1.3).
86 A Practical Guide to Angel Investing
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