1 Introduction
The exit is where you get your money back, you hope, with return, even better, and possibly a very good return, better still. (Cowley 2018)1Keep in mind that angel investors invest for returns.2
2 Literature review
2.1 Angel exits as planned behaviour
Entrepreneurship category | |||
---|---|---|---|
Venture creation | Venture development | ||
TPB category | Intentions | 21 | 2 |
Behaviours | 6 | 5 |
3 Research design
3.1 Sample and data collection
Participant | Case | Started | Sector | Stage | £ invested | Investment | Exit | Other investorsa | Type of exit | Multiple | Deal sourceb |
---|---|---|---|---|---|---|---|---|---|---|---|
(a) Investments by individual angels | |||||||||||
P2 | C3 | 2000 | Software for mobile and oil industry | Growth stage | 375k | 2011 | 2013 | B | Trade sale | 2.1 | PC |
P2 | C4 | 1993 | Medical software | Seed | 40k | 1994 | 2006 | VC, CoIF | Trade sale | 25 | PC |
P3 | C5 | 2005 | Education | Early stage | 50k | 2007 | 2014 | BAs, CoIF | Trade sale | 4 | PC |
P3 | C6 | 2001 | Software for mobile industry | Start-up | 80k | 2001 | 2011 | BAs, CoIF | Trade sale | 8 | PC |
P7 | C11 | 1996 | Finance | Seed | 100k | 1997 | 2004 | BAs, B | Trade sale | 24 | PC |
P7 | C12 | 1995 | Industrials | Early stage | 275k | 2002 | 2012 | BAs, VC | Trade sale | 1.1 | PC |
P8 | C13 | 2003 | Software for mobile | Seed | 150k | 2004 | 2009 | BAs, VC, CoIF | Trade sale | 10 | PC |
P8 | C14 | 2006 | Data software management | Start-up | 175k | 2009 | 2014 | BAs, Corp | Trade sale | 6 | AG |
P9 | C15 | 2008 | Software for several industries | Seed | 50k | 2012 | 2016 | BAs, VC, CoIF | Trade sale | 7 | PC |
P9 | C16 | 2014 | Machine learning for real estate | Seed | 60k | 2015 | 2016 | BAs | Trade sale | 1.4 | PC |
P10 | C17 | 2010 | Health care | Early stage | 45k | 2012 | 2016 | BAs | Trade sale | 5 | AG |
(b) Investments by angel groups | |||||||||||
P1 | C1 | 1994 | Hospitality | Seed | > 1M | 1994 | 2008 | CoIF | MBO | 1.2 | AG |
P1 | C2 | 2000 | Oil and gas | Start-up | 80k | 2000 | 2007 | BAs | Trade sale | 28.5 | AG |
P4 | C7 | 2001 | IT services and consulting | Start-up | 50k | 2006 | 2013 | CoIF | Trade sale | 8 | AG |
P5 | C8 | 2008 | Music | Seed | 1M | 2011 | 2013 | BAs, CoIF | Trade sale | 10 | AG |
P6 | C9 | 2001 | Bio-science | Start-up | 10M | 2003 | 2011 | VC | Trade sale | 1.2 | AG |
P6 | C10 | 2004 | Business services | Start-up | – | 2005 | 2014 | CoIF | Trade sale | 9 | AG |
3.2 Case analysis
4 Research findings
4.1 Attitudes
We would not have invested without having an exit in mind. (C2)You can’t invest in something before you’ve thought about how you’re going to get out. (C3)Yes, I thought about the exit, I thought I would take it to AIM. (C12)
I never go into these things with an exit in mind. I know everybody says you should but I don’t do that. … I don’t think of the exit. I think of building value. (C8)
4.2 Subjective norms
They were keen. Yes. I mean, you should bear in mind we were actively involved. (C1)Well, (the entrepreneurs) always started a business with an exit in mind. (C6)They were positive. Bear in mind that the team were academics. They got a big cheque and were really happy. (C15)They saw it as something they were very happy with. (C17)
I think they (the management team) were a little bit disappointed. ….. I think they probably felt they wanted to build a bigger company. (C8)
Other investors like X (business angel) just said you do it and let me know what the answer is. (C2)The VCs played a significant role alongside the angels on achieving the exit. (C13)The other investors were also on the board so they were very supportive. (C15)
They (the Co-fund) were not involved. I felt they had nothing to say about the exit. (C1)The whole deal could have been made without them (corporate firm), their position (5%) was immaterial. (C14)
4.3 Perceived behavioural control
We got one of our investors involved to help them (management team) get ready for an exit. (C2)Me and my fellow non-executive director, the finance guy, have been playing good cop bad cop in the negotiation process. (C5)We (angels) approached the buyer and were successful. Angel Y did the introduction, angel X and I did most of the selling. (C11)
The company appointed a non-executive who was a deal maker, he was very instrumental when we did the sale. (C4)Basically, at that stage a corporate financier was retained by the Board and they helped to drive the process. (C8)We had a considerable help from an USA corporate finance boutique to ensure that we had more than one buyer. We wanted to have a bidding war. (C14)
The intention was to continue to build the business and essentially find an exit at some point, but it just helped. (C5)I was not worried about the exit, I could not see what that exit was going to be but it was clear to see that an exit would happen given the scale opportunity. (C13)There was a thought of an exit when the Spanish corporate came on board but then in a trade show we met the final buyer, we felt it was so easy to attract interest. (C14)
We were trying to get out for a long time, remember, we did tried to sell it in 97/98 (ten years earlier). (C1)It was profitable, but it was just very difficult to achieve. An easier exit would have been achieved by changing the strategy on the business about three years before we sold it. (C9)The exit in this case would always have been more likely a trade sale. We did actually explore some other mergers earlier on when it became obvious that, actually, to grow it was hard because it was such a regulated environment. (C17)
4.4 Intention
We had been trying to get out for a long time. And our target was there. (C1)Well, we wanted to be aligned with management and management wanted an exit. And we wanted an exit because you’ve got to have some exits. (C2)The company was exitable, that is, it was acquirable and we wanted to exit…ultimately as an angel investor you need your money back. (C14)
It was either the CEO or myself leaving the company and I thought it would be better for the company for him to stay. (C12)The entrepreneurs copped out, they thought they were not going to be able to grow the business. This was disappointing. (C16)
We were trying to raise money to ramp up production and it was really hard to because we could not get debt funding. (C8)They knew, as I did, that the business was not delivering and to take it to profitability would have required a substantially greater investment. … So, we knew between us we had no choice but to sell it. (C9)The exit, in the end, was one that was brought about by necessity rather than a plan; they just need big bugs to overcome the regulated environment. (C17)
4.5 Summary
Positive | Neutral | Negative | ||||
---|---|---|---|---|---|---|
n | % | n | % | n | % | |
Attitude | ||||||
Exit process | 14 | 82 | 2 | 12 | 1 | 6 |
Subjective norm | ||||||
Entrepreneurs | 15 | 88 | 2 | 12 | 0 | 0 |
Other investors | 13 | 76 | 4 | 24 | 0 | 0 |
Perceived behavioural control | ||||||
Involvement | 9 | 53 | 0 | 0 | 8 | 47 |
Difficult | 10 | 59 | 0 | 0 | 7 | 41 |
Intentions | ||||||
To exit | 12 | 71 | 2 | 12 | 3 | 18 |
4.6 Exit strategy: proactive vs. opportunistic
I mean, one of the best ways of getting an exit is if the management pick up the word on the grapevine that some companies have cash and others haven’t got, and they are buying or not buying. (C1)We spoke to all the people. We spoke to a potential buyer, obviously, and we gave them a very clear steer that said ‘look we are going to get bought. (C4)Quite often, a good way of getting an exit is to have a partnership first to see if you can work together. Get them excited. Get them seeing the reason why they should buy. (C13)
Well we weren’t really thinking about it [an exit] as such. I mean the intention was just to build the business. ... The intention was to continue to build the business and essentially find an exit at some point, but there was no particular time table on that. (C5)We always think about the exit. But the way this one happened was it was opportunistic in the sense that the buyer appeared out of nowhere. (C10)The exit came to us because we had a business that was attractive. …it had been made attractive and that’s the key part of strategic planning, you have to make things that buyers want to buy. (C14)