Startup Boards -- Why Use an Early Exit Deal Structure

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

In startup funding, 65% of the investments after three years are still in business but are no longer on the venture track. 

In most cases, they are growing businesses but are not going to be bought out for a significant return to the investor.

The market conditions changed, competition took over, or the founder was no longer interested in keeping pace to achieve a venture exit.

The best-case scenario was the entrepreneur would sell the business for 2 to 3X after 10 years, in which case the investor would get a minimal return.

In my investing experience, three years into the investment, it becomes clear if the company will continue on the venture path or not.  

This was due to competition in the market, a difficult fundraising environment, or just plain poor performance by the company.

The entrepreneur signals their departure from the venture path by taking above-market rate salaries. 

I call this taking the “payroll exit,” in which case they no longer needed an “equity exit.”  

This leaves the investor stranded on the equity plan with no way out.

It’s very difficult to negotiate a buyout from the startup for the investor's shares since there’s no market for setting the value.

An Early Exit deal structure gives the investor a way out of this situation which is far too common in the startup funding world.


Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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On this episode of Investor Connect, Hall welcomes Tim Cooley, Executive Director at Park City Angels and author of the #1 best-selling book on raising capital, “The Pitch Deck Book.”

The Park City Angels are a group of 50+ accredited investors located in Park City, Utah. They look to invest in promising opportunities that can produce significant shareholder returns. The active lifestyle of Park City has attracted many dynamic and successful business leaders that have deep experience in building world-class businesses. Park City Angels facilitate unique, high-caliber networking and development forums for angel investors and mentors involved in early-stage investment. 

Park City Angels are most interested in companies that have valuations from $4M to $6M, have a reasonable likelihood of reaching $30M in sales within five years, and can get to cash flow break-even within the next year or two. Geographically their focus is primarily on companies in the state of Utah and adjacent areas, but they will also consider out-of-state deals if there is a connection to a member of the group or are referred to them by well-respected current investors.

Tim has worked with 100s of early-stage companies in marketing, sales, product development, and fundraising. The companies he has worked with have raised more than $200M in Seed and Series A funding. 

Tim discusses the types of deals the group looks for, some of the challenges startups and investors face, the future of angel investing, the inspiration behind writing his book, and more.

Visit Park City Angels at www.parkcityangels.com and at LinkedIn at www.linkedin.com/company/park-city-angel-network. 

Reach out to Tim at timlcooley@gmail.com and on LinkedIn at www.linkedin.com/in/timlcooley/. 

Purchase "The Pitch Deck Book" at Amazon and other major retailers.

_____________________________________________________________________

For more episodes from Investor Connect, please visit the site at: http://investorconnect.org  

Check out our other podcasts here: https://investorconnect.org/ 
For Investors check out: https://tencapital.group/investor-landing/ 
For Startups check out: https://tencapital.group/company-landing/ 
For eGuides check out: https://tencapital.group/education/ 
For upcoming Events, check out https://tencapital.group/events/  

For Feedback please contact info@tencapital.group   

Please follow, share, and leave a review.

Music courtesy of Bensound.