Here in startup-land, we have our own words for everything. We invest in unicorns, decacorns, and dragons. We talk about bootstrapped businesses and file startups into categories: B2B, B2C, D2C. It’s enough to make your head spin.
If you’re feeling lost in the vocabulary, you might want to take a look at your exclusive Silicon Valley dictionary, found here. You don’t need to know it all – I’d be impressed if you did – but there’s one word we use that will quickly become your favorite. That word is exit.
Exits are all the ways that we angel investors make money: IPOs, mergers, acquisitions, and so on. When we exit, we get paid, and hopefully see huge returns on our investments.
Recently, I sat down with a well-known angel investor to put together a first-of-its-kind presentation – a chance for us both to lay out some of the industry’s best-kept secrets.
See, we both came from working-class families, and we’re tired of watching doors slam shut whenever everyday investors try to get in on these life-changing private equity deals.
We talked a lot about the different types of exits and what they each mean for your bottom line. And you’d be surprised how critically important the differences are. In case you missed it, you can catch a rebroadcast of that presentation by clicking here.
You’ll have to see it for yourself if you want the full scoop – but, in the meantime, let’s talk about my personal favorite kind of exit.
It might not surprise you too much to hear that my favorite returns are those in which I’m offered cash up front. But not every angel feels the same way I do.
Many angel investors prefer to hold onto their shares or negotiate other perks in the event of an exit. That’s fine, but I think it’s important to keep this in mind: if you have a deal that gives you 50 or 100X your money back, how greedy do you really want to be?
Personally, once I’ve made an amazing return, I like to take my money and walk. I believe there are bigger fish to fry out there, and that exiting from investments early and often is the best way to boost your bottom line.
And the numbers don’t lie – my system works. Take my investment in Remitly as an example. Remitly is a platform for international remittances – in other words, it helps people send money to their loved ones abroad, faster and with lower fees than wire transfers.
I invested $25,000 into Remitly when it was still just a small operation. A few years later, when the company was much larger, I was given the opportunity to sell my shares for $425,000. That’s a 17X return that I wasn’t about to turn up my nose at, and here’s why: companies don’t grow exponentially forever.
So, while I could have held my shares and seen them grow in value, I decided to take the cash and plug some of that capital into 13 or 14 new startups. Think of it this way: even if they all failed, I’d still come out in the positives overall. And, as you know, when you’re making 13 or 14 bets, you’re more likely to hit a big winner than you are to strike out (more on that here).
My advice? Exit early and exit often.
Until next time,