In the final chapters of the book, we talk about harvesting. After readying the chapter, it is basically the exit plan.  There are five positive methods and two negative methods.  Andrew Blair states, “The exit has to be engineered as carefully as the deal itself” (pg. 289).

Walking Harvest is where the company distributes case directly to the investors regularly and could take time for that to happen.  Once it does, it is normally a steady stream of income.

Partial sale takes place when the investor is ready to exit the deal.  Here the investor will either sale the shares to management with cash or a buy-out-agreement or sell to another investment company that specializes in buying minority positions in small and medium sized companies.

Initial public offering is investors who aren’t waiting for the public offering, you are waiting for the point at which the company has created the most value (Daryl Wash pg. 294).  Here the company sells a percentage of their shares and makes it easier for the company to raise capital, basically getting the business to where it has the most value.

Financial Sale is purchasing the company based on its current and expected cash flow. If you have cash flow, this is a great deal. 

Strategic sale, Bert Twaalfhoven say that the best returns come from strategic sales (pg. 297).  They are usually looking for value beyond the cash flow.  The return for the investor could range from 10x to 40x.

Chapter 11 would not be a good way to exit, bankruptcy.  This is an option where you can reorganize, but most if not all of your equity holders are gone or have reduced their shares considerably.  This option will save you from filing chapter 7 and give you another chance.

Chapter 7 is total annihilation, you have lost everything.  Not the way to exit

I said it earlier in a discussion that there is so much that goes into investing.  After reading this book, it was clear how much I do not know.  I think it is so important to understand and or surround yourself with those that do understand investing.  I still feel that in the end, it is the relationships that matter the most.  They are the ones that are going to be honest with you and have your best interest at heart.  Network, have a good lawyer, financial advisor, and friends that will look out for you.

Reference

Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

7 Comments

  1. Katherine,

    The partial sale sounds like a good harvest for the investor but it makes me a little worried for the entrepreneur if the investor sells to someone the entrepreneur gets no say in, especially if there are significant shares or control of the business involved. It was one of my least favorite discussions this week in the book. I think the strategic sale sounds like a very good harvest if done correctly and with the correct research and such put into place. As discussed in the other weeks, the value of a venture isn’t just in its finances and I think the strategic sale takes this into account more than the financial sale. I agree that the relationships built and gained throughout the investments are still one of the key takeaways from these lessons.

    Great read,
    Victoria Price

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  2. Katherine,
    I will have to echo your thoughts on this form of investing. This book opened my eyes to how little I know about investing, especially this type. After reading the book, I feel that there are many principles that can help us prepare for any potential investors we may seek. I do not feel like I could be an angel investor until I have entrepreneurial experience under my belt. I would feel like an imposter trying to tell someone how to run a business when I have never done so myself. Great thoughts!

    Joe Rudy

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  3. Hi Katherine,
    I think your final paragraph sums it up for me as well. There is so much I just don’t know when it comes to investing. Much of the business and the investing world seems built to keep people out. Hopefully, by reading these books and taking these courses we will be able to step a toe into those waters and eventually navigate them safely. In the meantime, getting a lawyer and a good accountant seems like the way to go.
    Brian G.

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  4. Katherine,

    I too feel like there is still so much to learn about investing, but this book has certainly opened my eyes and helped me to understand a little bit more about it. It is kind of exciting and interesting even though it seems to involve a good amount of risk. I agree wit Joe that I feel as though I need to gain more experience as an entrepreneur before I feel comfortable investing my money in other businesses and helping other entrepreneurs achieve success. Also, the whole exiting process of running a business is something I have never really taken the time to think too much about. I usually get caught up in the idea for a business and how it will run. However, I am now understanding that thinking about various exit plans is something that should be considered from the vary beginning. A business plan that includes potential exit strategies is going to be much more appealing to potential investors.

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  5. Hi Katherine,

    I agree with others that your last paragraph really sums it up well. So much goes into investing and it’s best to surround yourself with those that know it well. I also agree that relationships matter the most!
    Best – Ed

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  6. Hi Katherine,

    What you said about understanding investing is very true. Surrounding ourselves with people who are fluent in the industry and aware of the many pitfalls we might encounter is essential. Building and maintaining these relationships can be beneficial to all parties involved. The idea of filing Chapter 7 is terrifying to me. I hope none of us ever have to face anything like that, but hopefully with the knowledge we gain from our courses we can avoid ever being in that position.

    Great work! I always enjoy reading your perspectives in our courses.

    Cheers,

    Taylor

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  7. Hey Katherine,

    There certainly was a lot of valuable information for beginning entrepreneurs to learn, retain, and apply in our careers. I agree with you that one of the more significant takeaways is to be intellectually prepared with a good, trustworthy network, industry-specific lawyers, and financial experts. The last company I worked with went through an IPO and, after becoming public, was eventually acquired by Verizon communications; it is pretty amazing to reflect on what that experience was like and learn more about it through this book.

    Best,

    Stokes Warren

    Like

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