Pro-actively planning their exit strategy can more than double returns for angel investors, a new study has shown.
The advice for business angels looking to invest in start-up and early stage businesses is that their exit plan needs to be part of the decision whether to invest.
The new research identifies that the average return of a pro-active exit is more than twice as high as those achieved by exits that occur opportunistically.
In one of the first academic studies to ask how exits happen, researchers from University of Glasgow Adam Smith Business School, University of East Anglia and University of Edinburgh Management School, highlight best practice that can be adopted by the business angel community.
Typically less than one in five investments by business angels generates a positive return.
To achieve a healthy financial return, academic experts recommend business angels should adopt a pro-active exit strategy, taking steps to prepare their investee businesses for an exit – for example, by signalling to the market that they are open to an acquisition offer, identifying potential buyers and developing close relationships with companies identified as potential acquirers.
Dr Botelho from the University of East Anglia said:
“Thinking at an early stage about an exit clearly pays off. If business angels want to be rewarded for the risks that they undertake in making early stage investments they should adopt an exit-centric strategy.”
Professor Colin Mason, Professor of Entrepreneurship at University of Glasgow Adam Smith Business School, said:
“Exits are the least understood part of business angel investing. Most of the discussion is about how to invest. This is one of the first studies to ask, how do exits happen? Angel associations need to give more prominence to exits in their investor training programmes.”