Initially, I thought this section would be about how to harvest investment opportunities. But to my surprise it was about how to harvest the results of your investment. Amis and Stephenson point out early in the section that “Harvesting is the end game of early-stage investments, the financial score by which you will measure your success.” As they review the 5 fundamental types of positive harvest, we find that Harvesting our “fruits” are not as easy as saying that we want out. It needs to be a little more strategic that than as we want to leave as little on the table at the end as possible. However, our strategic opportunity to do so is not as controllable as it may seem.
The seven fundamentals to Harvesting as listed by Amis and Stephenson are Walking Harvest, Partial Sale, IPO, Financial Sale, Strategic Sale, Chapter 11, and Chapter 7. These are financial terms and events that many of us may have heard about and may even have thought we knew a lot about, but Winning Angels gives us the view from the eyes of an angel or VC that may see these as an exiting event. Obviously, Chapter 11 and 7 are negative bankruptcies and we want to stay away but understanding that they are a possible ending spot for our start-up is an important thing to understand. The other five are positive events but once we review each one from Amis and Stephenson’s teachings, we can understand how important it is for strategic planning to take place through out the timeline of the investment. The ultimate plans of the entrepreneur, matching with angels and VC and growing value in each round of investment can be as influential on the business value as the market opportunities and profitability of the business.
As an angel reviews the business I agree with Amis and Stephenson’s point to “Listen for the magic word.” That word being exit. The result of any investment is a return on your money. If the entrepreneur wants to run the business for ever and does not have a plan to grow the business (value) to a point greater than they then your investment return may be limited by what harvesting events come to a result. If an entrepreneur wants your investment but wants to run the company for ever then you are most investing for the cash flow of the business. This is great if a walking harvest is what you are looking for but if you want a BIG BIG PAYDAY then the options are limiting.
As entrepreneurs in this program we may not have been this strategic in our plans to harvest our profits and retained earnings as the value of our company grows. This section heightens our thoughts and challenges our thinking about where we ultimately want tour businesses to go. “Winning Angels: the 7 fundamentals of early-stage investing” gave me a greater insight to the possibilities of where I may want to take my entrepreneurial desires and it certainly is leaving me with the understanding that I have more to learn.
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.