Whenever I hear an entrepreneur, or angel investor, say “early exit” they have a really big smile on their face. Even some of my VC friends beam when they talk about the jump in their returns if they’ve gotten lucky with an early exit.
In my experience, almost everyone wins in an early exit – the entrepreneurs, the employee share and option holders and the angel investors certainly do. I do acknowledge there are times when early exits are not good for the venture capital investors.
Recent research from the UBC Sauder School of Business shows that in BC and Alberta we are really good at early exits. This is one of the reasons BC has some of the highest returns on startups and venture investments of any state, or province, in North America.
There are some outstanding examples of early exits in BC. Early exits helped make my early stage venture fund a top performer. Early exits also boosted the returns in my new angel fund and provided our early investors a 100% return of their capital in just over two years.
But when I first blogged about early exits many of the comments were negative. Even though the phrase is spoken all the time, Google produces surprisingly few hits on “early exits”. The more commonly used keywords are ‘built to flip’ and most of that writing is also negative. So why are most writers so negative? In my opinion, it’s just a byproduct of our human resistance to change – to progress.
The internet has accelerated everything; product and company development cycles, investor time horizons and employee attention spans. Early exits are a natural consequence of the internet. And the trend is accelerating.
The internet has given entrepreneurs an unprecedented opportunity to rapidly launch and exit their startups. The most successful entrepreneurs, directors and investors will find ever better ways to design and execute early exits.