A “zombie” or “walking dead” company continues to exist and perhaps slowly grow, but the investor can neither get their money back nor write off the investment as a loss. The management team and staff may get well-paid, nice jobs, but the Angel gets nothing. These are sometimes called lifestyle companies because the founder has a nice lifestyle, but the investor does not get a return. Eventually, Angels are interested in an exit event. Entrepreneurs and Angels can have very different opinions on when, how and for how much it will occur. Often, term sheets and shareholder agreements contain clauses that allow Angels to force an exit, even if the entrepreneur disagrees. These terms can be highly contentious, so you need to know yourself well enough to know if you are prepared to be involved in the company to the extent required to force such an exit – otherwise why bother to negotiate for these clauses? As noted by Dr. Andrew Maxwell: “All investments are made with the intent of achieving a good exit, but surprisingly limited attention is paid to potential exits when making the investment decision (Mason, Harrison & Botelho). This is particularly surprising, given what we know about different rates of return obtained by following different exit strategies (acquirers and timing). “Given the adage, ‘start with the end in mind,’ it is critical that Angels recognize that the most common successful exit (more than 80% of cases) is being acquired by a company in a related business that can drive more value from the venture than the company can achieve on its own. This has significant impact on the way the early rounds of investment take place, the strategy of the business, and the initial term sheet. Even before attracting its first round of investment, a company should be able to identify potential acquirers and what strategies or tactics it might take to engage those companies.” Mike Cegelski states: “I try to keep my post-investment level of involvement to a minimum. If you’re in there, it means they are having ‘issues’ and that’s a bad sign. I can’t really help 20–30 companies, so I’ve become an expert in delegation. I like to help with contacts and maybe sit on a board but I put my time and effort into making good deals.” 1.8 Personal Education Goals Lifelong learning is an important element of health and wellness. Angel investing provides ample opportunity to stretch your intellectual muscles. There is much to learn about future trends, new technologies, new business models and new entrepreneurial tools. Staying on top of what is hot, and which companies are acquiring or merging with others, can be rewarding and pay off big dividends. Learning how to become a better mentor and coach can also benefit your personal life. According to Frank Erschen: “When you decide to become an Angel investor, you are also committing to a new wave of learning. Unless you are a former entrepreneur, or worked at a venture capital firm, or come from a mergers and acquisitions background, you are entering a new world.”
30 A Practical Guide to Angel Investing: How to Achieve Good Returns
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