Level of Involvement Differs Among Angels For many Angels, being involved in the company growth and exit is everything: “Anyone can write a cheque. The hard part is what happens after the investment is made.” — Peter Kemball , CEO, The Kemball Group Others are more reactive: “I give the CEO my phone number and expect a call whenever help is needed. I trust my entrepreneurs to be responsible executives who know when to call me. I can’t add any value by pestering them or asking them to send me reports.” — Mike Cegelski , Angel Investor, Kouraje Management Inc. Yet others are more formal in their processes: “All of our investee companies fill out mandatory quarterly reports using our prescribed format. These formal reporting duties are included in the term sheet and shareholder agreement.” — Ross Finlay , Co-Founder & Director, First Angel Network “Good luck actually getting the reports!” — Mike Volker , Co-Founder, Vancouver Angel Technology Network A liquidity event takes place when an investor gets cash back for the cash he or she put in – often with the investee company being acquired by a larger firm or perhaps going public. In some cases, a secondary investor may buy out the earlier investors. Or the entrepreneur may pay back the investors through royalties, dividends or share buy-backs (see section 6.3). An exit event includes all forms of company exits, including not only liquidity events, but also failure, bankruptcy or acquisition, when certain investors or creditors get zero return. 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).
How to Achieve Good Returns
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