Supporting and Harvesting

 When it comes to the supporting stage of the venture, the understanding of the role that you are to play as an investor becomes paramount. Depending on the specific business and industry, different types of capital need to be administered by the angel or VC. The goal of supporting should always be to help the entrepreneurial venture reach its next value event. According to David Amis, value events include any event that has a fundamental impact on the real or perceived value of a business and its likelihood of success. This means that proper support can help the business scale and attract more investors in later rounds of investment. These events are specific to each business but can more generally be broken down based on industry and stage of development.

               An investor coming into a business must make a judgement as to what role they are able and willing to play. Depending on the needs of the business this can be passive with higher financial costs or authoritative with experience driven assistance for the entrepreneur and management team. A silent partner is a type of investor that offers strictly financial investments and allows the management team to run the firm. This takes a large amount of confidence in the team’s ability to navigate the industry and make sound business decisions. A slightly more involved version is the reserve investor. This angel offers a help line for the entrepreneur in the case of unforeseen threats to the business. When called upon the angel can then allocate their time and network resources to the specific issue. The coach investor similarly offers a more hands-off form of an assistance but requires that the entrepreneur provide steady and regular streams of information. This can be a great way to view how the entrepreneur problem solves and deals with adversity without becoming too controlling over daily operations. Team member investors are those that enter the management team and help with the day to day activities. This more hands-on approach gives constant support to the entrepreneur and is more appropriate if the owner is new to the industry and requires consistent guidance. Finally, the controlling investor is one that takes over a majority share in the venture and usually appoints themselves as CEO. This should be done if the angel has little or no faith in the management team or entrepreneur to effectively pursue the opportunity. All these options require varying amounts of resource commitment and should be used in conjunction with your assessment of the context surrounding the business. Time is everyone’s most important resource and must therefore be properly allocated if the venture is to be successful.

               During my undergraduate I remember attending an angel event in which startups made visual presentations to potential investors. One business that stood out to me was a new company that developed a technology that replaced oxygen tires with nitrogen. This was shown to increase the fuel efficiency and therefore save on overall expenses. The entrepreneur was convinced that they wanted to take the idea to a broader market and was advised by the potential investors that trucking and shipping fleets would be a better initial public offering for revenue generation. This is a classic example of a conflict in vision by the entrepreneur and potential angel. If a deal was made and the entrepreneur refused to change their mind on their desired market segmentation, then the investor may be required to take a controlling share of the business to guide the firm to profitability. In contrast, if the entrepreneur decided that she is willing to accept the advice of the entrepreneur, then a coaching or reserve role might have been more appropriate. Both the entrepreneur and potential angel want the firm to succeed and these conflicting visions may interfere with the overall profitability of the firm.

               During the structuring stage of the investment process, the angel and the entrepreneur should hash out the potential exit strategies to make sure they are on the same page. If supporting goes well, the firm should be on its way towards maximizing its value capturing.  When this happens, you must move into the next section of investing, harvesting. In this stage the investor plans to maximize his returns by strategically exiting the firm. There are several ways, both positive and negative, that this can happen. Among the most common are the IPO and the strategic sale of the venture. A strategic sale is when the company is sold to an industry buyer for strategic reasons. These deals are often the most lucrative and quick because they are done by experts within the given industry. The value captured through the acquisition of another venture is determined by factors that often go beyond just the current cashflow of the business. This offers a great opportunity for the investor to get out with insane returns. The concern comes with the potential for the entrepreneur to make deals outside of monetary gains. These deals can shift their decision making and an investor may be unable to affect the outcome. IPO’s on the other hand are simply taking the company public. This allows the management team to continue to run the firm, while also giving the investor a chance at liquidation. A major problem with this method is that it can possibly make the venture more susceptible to threats depending on the market.

               As I discussed in previous sections, the relationship is key throughout this entire process. In the early stages we sift through potential ventures and individuals to find attractive opportunities. In the later stages we provide the formalities and the support required for everyone in the situation to benefit. The process is highly reliant on trust and the synchronicity of the management team, angel and entrepreneur. Nobody is a master at investing in the beginning. Through trial and error, you will find which strategies work best for you.