Exit Strategies for investors

idaho

I`m putting the finishing touches on my business plan and preparing to take the next step, finding money.  I am most likely going to be pursuing angel investors for this venture but I feel that I don`t have a good exit strategy for this type of investor.  What sort of terms should I be presenting them with and what should my expectations be for their demands?
As I understand it 36 months is the norm for most angel investors to expect to get their money back plus a return of some sizable percentage.  What happens once this payback occurs?  Thanks for you help

robertj

Most "professional" angels expect the company to require additional funding rounds (typically from a VC firm) which then necessitate a liquidity event such as a M&A or IPO. 
Depending upon the situation, the angel may anticipate being liquidated during the VC round or wait until the VC liquidity event. 

idaho

Thanks guys for your insight, very helpful.  How detailed does the exit strategy have to be when you initially sit down with an angel for example?  I am not looking for enough capital to be able to attract a VC and the terms of the deal with a VC would probably be too drastic for me to consider seriously.
Thanks.Rickwww.brewtopiabeermarket.com

robertj

Rick,
The amount of "detail" in your exit (or liquidity) strategy would vary according to what it is. For example, if you have a "repurchase" strategy - you will need to have the details available during the process. If your liquidity plan is a sale  then a few possible "suitors" may be all the detail you could provide.
A word of caution: Since you say you aren`t looking for a VC (venture capital company) - I`d recommend that you have some offering documentation, not just a business plan. 

idaho

What sort of details would I need for a conversation with an angel?



By offering documentation do you mean a shareholder agreement of some kind?

robertj

The "right" documentation would depend upon the type of transaction and the type of relationship you want to create by the transaction.
Send me a PM if you want to discuss specifics.

hardknocksmba

It`s not what`s in the plan so much as what is credible and possible.
There are two normal exit strategies - the company goes public with an IPO, or you sell the business. The average deal sheet has a forced stock buyback (i.e., forced by the investors, not the management) at a multiple, but that rarely happens in the real world absent new financing because the money isn`t there.
Is you company going to be big enough to do an IPO? There haven`t been a lot of IPOs lately. It can happen, but saying it doesn`t make it so.
Are  you willing to sell the company? Are you willing to give the investors the right to sell the company out from under you, which is what they will insist on if they have any sense?
If the goal is for you to run this company as a small company for life, angel financing from anyone other than your grandma is not a great option, because they are going to want their money back, with a fat payback, fairly soon. If that means freeing you up for your next opportunity, that`s the way it goes.

idaho

Thanks for the feedback hardknocksmba for your comments.  This is a brick and mortar retail enterprise but it is built for speed and I have planned to be at 40 stores within 5 years through a franchising.  
An IPO isn`t out of the question at that point but its not real likely.  An acquisition is more likely but still no sure thing.  The ROI through dividends is good through year 3 and really really good through year 5.  I`d like to pay dividends yearly and do a buy back option for those that want to cash out.  Is that not a realistic premise?Thanks again.Rickwww.brewtopiabeermarket.com

idaho

Fastventrures, great questions and thanks for checking out the site and providing feedback.
I do have a powerpoint presentation but it could use some fine tuning to really tighten it up.  I also have a fully built out business plan and financial plan projecting 5 years of operation and growth.  Like writing a novel I`m experiencing writers block on how to end the business plan and that involves exit strategy for most involved.  I have my next advisory board meeting on Monday the 14th where we will be looking very closely at the financials and the investor presentation.  I have a really strong board with a former GE exec, a COO of a prominent internet retailer, two marketing people, a wholesale beer and wine distribution specialist and my accountant.  They`ve been really great to work with and very helpful but they all have a different idea about how you handle liquidity events and exit strategy at the proposal stage.I don`t want to miss the forest for the trees with too much focus on exit strategy because you`re right, the important thing is to be prepared and to have access to potential investors.  But at the same time, I need to be able to explain how they will make money from entrusting Brewtopia Beer Market with their money.Rickwww.brewtopiabeermarket.com