One of the signs I’m becoming an old timer and curmudgeon is my lack of patience with the focus on exit strategies by entrepreneurs who have yet to garner a dime of revenue.
This probably stems from my first experience with venture capitalists. When my co-founder and I had a meeting with Greylock’s partners, the penultimate step to receiving an investment from the venerable firm, we got our lesson on “exit strategies.”
After getting grilled by all of the partners finally at long last, Managing Partner Dan Gregory asked my CEO and co-founder, “Well do you have any questions for us?”
And we did have one. We had both read a few books on venture capital and they all insisted on the importance of having an exit strategy. But not one of the Greylock Partners had asked us what our exit strategy was!
So that was our question, “Don’t you want to know what our exit strategy is?”
Dan Gregory answered the question quite memorably, “No, your job is to build a great company. If you do that, the exit strategy will take care of itself. And if you don’t … the exit strategy will also take care of itself.”
And that was the last time in several years of working with Greylock I ever head the term exit strategy.
This is a story I’ve told many times, mainly when early stage entrepreneurs start expounding on their exit strategies or worrying about what their’s should be.
Now, I should say I have never succeeded in raising any angel money, despite having pitched several angel groups on behalf of a company where I was acting CEO. And as I understand it, angels are far more focused on exit strategies than VCs. Why? Because angels have shallow pockets. They can’t afford to invest in multiple rounds – Series A, B, C and beyond – the way a VC fund of $100 million or more can. So they have very short time horizons compared to VCs. They need to be able to tell their wives or husbands that they’ll be getting their investment back quickly, before they get so diluted by the VCs that their ownership is negligible.
That being said, the goal of a startup shouldn’t be gaining an angel investment. In fact it shouldn’t even be gaining any kind of investment at all – the goal should be building a great business. And if that proves to require an outside capital infusion then so be it. It may be necessary to provide angel investors with some possible acquirers – as an IPO or acquisition are really the only two exits worth talking about and an IPO is self-explanatory. You may even need to find some “comps” – companies similar to yours that have been acquired recently.
But the key takeaway is don’t build your company to be acquired – markets and acquirers change and you may totally distort your company and fail to build a great one by taking your eye off the ball and putting it on an angel’s.