What do I say when an investor asks about exit opportunities? – Accelerated from Wellington
Different investors have different timelines, and many early stage investors are forced to think not just about getting into an investment, but also about getting out. Venture funds, for example, are often limited to 10 years before they have to give their money back, with the first five years focused on investing, and the second five years on exits.
So it’s a valid question for them. It’s also a valid question to ask yourself, but along with it, ask yourself, why you are in business? Are you there to make a quick buck and exit, or are you there to build a business for the long term? If it’s the first, then you may have alignment with short-term investors, but I will also challenge whether you are focusing on the right goal.
Going for the gold may result in the company making poor, short-term-focused, decisions. If you’re aiming to build something great to deliver on a lofty mission, then you can still take the money if Facebook or Yahoo! open the billion dollar chequebook.
Meanwhile you can focus on building the business – and also think about how you can allow shorter-term investors to actually get paid their return. With the success of Xero and the recent flurry of tech companies onto the NZX, it’s satisfactory to reply that you’d follow Rod Drury’s advice and man up and IPO, allowing investors to exit in the process.
Otherwise, the alternatives are to sell their part of the company to a competitor or partner, or to accept that you may have to sell the whole company before you are ready. Alternatively, seek out a growing crop of investors who are in it for the long haul.