What Happens After you Click 'Invest'?
Short Answer:
A long time from now!
Exit Events
Traditional startup exit events include shutdowns, acquisitions, and IPOs. As companies stay private longer, secondary sales are becoming more common. Secondary sales are when early investors sell some or all of their ownership to later-stage investors. For example, Series B or C investors actively seek to buy out smaller early-stage investors or SPVs.
If you invest in a venture fund, the fund manager decides whether to “take some money off the table” at an earlier round. The same is true for an SPV if it is actively managed. We’ll talk more about this later.
The J Curve
Regardless of how the companies in your portfolio exit, you need to be prepared for the pattern that will emerge.
Startups that are going to fail typically do so within the first 3-5 years. Successful startup investments usually take 7-12 years to deliver a cold, hard cash return.
That means your angel portfolio returns, over time, will look like this - a J Curve. Here is a generic graph of what that looks like.
Just when you start to settle into your angel style, you start getting bad news. Your first investments may begin to fail, and it feels cruddy.
Pro tip: As cruddy as it feels to have an investment fail, it feels worse for the founder. Be kind.