Harvesting – Winning Angels: the 7 fundamentals of early-stage investing.

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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.   

Reference:

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

5 thoughts on “Harvesting – Winning Angels: the 7 fundamentals of early-stage investing.

  1. I enjoyed your post, Jeramy. As you mentioned, I think the most significant learning that can come out of the reading for us is a better understanding of the thinking of a potential investor. Certainly, as entrepreneurs, we want to present our fledgling businesses and ourselves as organized, competent, and primed for growth. We want our fantastic idea to shine brightly and to be reasonable in negotiations for financial terms. However, as the reading points out, we can’t appear (nor should we actually be) too attached to our business. Experienced investors don’t want anything to do with an entrepreneur that is only interested in a lifestyle business or someone that will never part with their most cherished possession. If we want to strike a deal with a quality investment partner, we’ll need to have thought through our eventual exit and signal that thinking during the initial meetings.

    By the way, the “Payday” bar is a great touch!

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  2. Hi Jeramy,

    This is a great post. I believe forming a great relationship with investor will pay off for the entrepreneur when it comes to harvesting. As you stated, there should be a clear plan for growth. I learned a lot from this section of the book. I hope to have a great plan of potential growth and success for Beauty4Ashes. I enjoyed reading your post.

    Best,
    Shannon

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  3. Hi Jeramy,

    I agree that this book has definitely reinforced the fact that I have a lot to learn. While I do not intend on becoming an angel investor in the near future, I feel as if it has done an excellent job in preparing me for interacting with them as I go about the process of raising capital for my business. One key takeaway for me is to be open with the investor about exiting, being sure to convey my desire to reach a mutually beneficial exit from the onset.

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  4. I enjoyed reading your post on Harvesting. The picture was a great touch. I agree that while in the planning phases, it is difficult for many to have the foresight to consider exit plans. However, it is important for us to consider exiting as most probably do not want to run a company forever, and want to retire and enjoy the fruits of our labor at some point.

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  5. This is the best part of the whole process, unless you go the route of Chapter 7 or 11 bankruptcy. Most entrepreneurs are going to sell if the price and terms are right. I was involved as an employee in a tech buyout, and even at that small scale it was nice to see the stock I had purchased bear fruit. An investor shouldn’t push an entrepreneur into a sale, but should always be ready for that event to come. Of course if the entrepreneur never sales it becomes more important to make sure that the company is sustainable and you support it.

    https://www.citizen-times.com/story/news/local/2014/11/13/asheville-firm-part-largest-tech-deal-wnc-history/18997877/
    https://www.prnewswire.com/news-releases/everyday-health-enters-into-agreement-to-be-acquired-by-j2-global-incs-ziff-davis-for-1050-per-share-in-cash-300349085.html

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