Exits not just benefit investors but entrepreneurs too
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| Anurag Batra |
I am starting this DARE column by quoting Basil Peters— “Angels also often want to contribute more than money to a young company. Angels have the experience, and inclination, to be great mentors and valuable directors.” I say this as a lot of young entrepreneurs come to me for advice and want me to mentor them, guide them, take stakes in their company, etc.
I keep thinking about what the ultimate aim of an entrepreneur is. Is it to become a philanthropist? Is it to help other entrepreneurs and their angel investors? Or is it all of the above or more than I have even thought of?
Something that I came across big time, while guiding them and going through their business plans, was that none of them had paid big attention to how the investor would make money. Their business plans were more focused on achieving business milestones and operational and tactical goals. Most of them had not even thought of how their angel investors would exit and how investors in their business, at any stage, would make money. When asked about exit they couldn’t tell me whether they would grow the venture to a certain size and then it would be bought by a larger player or if they would seek bigger investors at higher valuations or whether they would do an IPO. That line of thinking about exit was too premature for them.
To quote Basil Peters again from his website— “After being an investor for a couple of decades, I realised that when I made an exceptional return on my investment, it was always because the exit had gone well. I also realised that exits are the most fun part of being an investor or entrepreneur. Most of the companies I’ve helped sell were the ones I’d invested in. Recently, I have also done a few exits for companies I haven’t invested in. I do this through my company Strategic Exits Corp. I was surprised by how little had been written about exits - especially for entrepreneurs and angel investors.”
I know this is the week when Warren Buffet and Bill Gates are visiting India and have encouraged Indian entrepreneurs to join the “Giving Pledge.”
In a recent article in Express called “Memo to Buffet on the beauty of Daana,” columnist TJS George says Bhagavatam scholars explain that true Daana is accompanied by Maana, reverence for the recipient of a gift. Daana is an act of worship and the giver worshipping the receiver. What a magnificent thought! Giving can never be an act of condescension. You are not doing a favour; you are receiving a favour.”
The reason I mention this article is because many of the young entrepreneurs I meet have told me that they would like to become philanthropists when their venture becomes big and when they have created enterprise value
and wealth.
The question I ask these budding entrepreneurs is how I, as their angel investor, will make money? Have you thought of exits? Mostly, they don’t have a clue or haven’t thought enough on this aspect.
What is the ultimate goal of an entrepreneur? Making his or her investors make money by exiting? That’s when he or she knows what his/her enterprise is worth. That way he or she makes their equity in the venture profitable. In fact, angel investors base their investments on the potential of the fact that other bigger investors will come in and buy them out once the venture has moved into a larger growth trajectory.
As Peters says, “Exits are the best part of being an entrepreneur or investor. It’s when we get financially rewarded for all of the creativity, hard work, investment, and risk we put into our companies.”
I meet a lot of entrepreneurs of all shapes and sizes, and I would recommend that they read this book called Early Exits: Exit Strategies for Entrepreneurs and Angel Investors. It is Basil Peters’ masterpiece.
I would like to end by quoting Peters— “Built to flip should not be a dirty phrase or an unnatural act. I believe that to succeed today, entrepreneurs must not only aspire to early exits, but design that objective into their corporate structures and corporate DNA.”
Aesop said, “Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.”
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Anurag Batra is real life, first-generation entrepreneur who is Much Below Average (MBA) from the prestigious Management Development Institute, MDI. Anurag is the founder and editor-in-chief of exchange4media group which includes exchange4media.com.
To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Anurag Batra'.
The views expressed here are that of the author and do not represent the magazine's.
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