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David Harkins

Dr. David L. Harkins is a social scientist researching the human experience in systems and culture. He is an experienced executive coach and consultant, passionate educator, and keynote speaker. Through his teachings, inspiration, and guidance, he helps individuals and organizations identify and connect with their potential to make a meaningful difference in their communities.

How Angels Exit an Investment

This post is the last of seven posts about angel investment in entrepreneurial ventures.

Angel Investors are likely to want to know an entrepreneur’s exit plan from the beginning. While those exit plans may change as the business moves from its seed or start-up phases into something more mature, the entrepreneur who understands the need to formulate a positive (e.g., profitable) exit strategy from the beginning is likely to have greater interest and engagement from the investor. Considering this, let’s examine the more common positive ways angels exit an investment:

Walking Harvest

A walking harvest allows the investor to take distributions on a regular basis from the company (Amis & Stevenson, 2001). Assuming the business has good cash flow, this may be an easy way for an entrepreneur to secure the investment needed while minimizing the need for a valuation, as might be required with other exit strategies.  Entrepreneurs should keep in mind that this might be viewed as debt financing and an investor may desire a high degree of involvement to ensure sufficient cash flow is available to meet the mutually agreed upon distribution plan.

Partial Sale

A partial sale allows an investor to exit a company when the business is successful, but the prospects of sale are not good. In these cases, the investor might sell their shares to management for cash or via a buyout agreement, or sell their shares to an investment company that specializes in smaller transactions (Amis & Stevenson, 2001). This approach allows the investor to get out of an otherwise illiquid investment with some gains. For the entrepreneur, however, it might be a nightmare because he or she might end up with a partner that might not be a good relationship fit.

Initial Public Offering (IPO)

Initial Public Offerings (IPOs) are not an exit strategy in and of themselves. IPOs are a financing event that allows an early investor to convert what may otherwise be an illiquid investment to a more liquid investment when the company’s shares are offered to the public. The investor may or may not sell once the company goes public. However, they do have the option of choosing when to do so at the point where they have created the most value for themselves (Amis & Stevenson, 2001). The investor might make this choice based on the initial investment and the sale price of the stock on the open market.

IPOs can be good for entrepreneurs to grow wealth and visibility, but the vehicle may not be ideal for the investor. Since investors are prevented from selling stock for six months after the IPO, their post-IPO valuation may decrease, and they might have to wait a long time to recover any financial gains initially planned from the IPO itself (Amis & Stevenson, 2001). Entrepreneurs should keep this in mind if an IPO is a planned and legitimately possible exit strategy for the business.

Financial Sale

In a financial sale, investors exit when a company is sold for cash. In this case, the buyers consider the company value based on current and expected cash flows where multiples are predictable (Amis & Stevenson, 2001). The upside for an angel is that the purchase is made in cash and they should, hopefully, see a return on their initial investment. An entrepreneur will likely also benefit from this strategy; however, planning for a financial sale at the outset can be a challenge because markets change and the intended and possible “buyer(s)” may not be in the position to execute a purchase when the entrepreneur is ready to sell the business. It is also important to keep in mind that an investor will likely play an active role in the sale process and he or she will want to find a deal to maximize their return. In some cases, this may result in lost sale opportunities should the investor not believe the performance gains of their investment is sufficient.

Strategic Sale

A strategic sale is one where the entrepreneurial venture is acquired by a player in the industry who seeks the acquisition to gain some industry advantage. This type of exit is good for the investor because the buyer may pay a value that exceeds cash flow and assets because it desires the competitive advantage it may realize from the purchase (Amis & Stevenson, 2001). In such an arrangement, the entrepreneur will likely receive cash for the deal, but may also secure a job contract or a consulting arrangement with the new company. Unless the financial terms warrant it, entrepreneurs should be wary of non-compete arrangements in such deals which prevent work within the industry of expertise for an extended period.

In addition to the positive exits above, there are also possible negative exits. Bankruptcy is the most common, with the options being Chapter 13 or Chapter 7. Chapter 13 provides the opportunity to reorganize the company’s debt, but it means the investment is significantly reduced, if not eliminated (Amis & Stevenson, 2001). The investor may see a return over time, but it is dependent on the workout strategy planned and allowed by the courts.  In the case of Chapter 7, the business and its assets are liquidated (Amis & Stevenson). Investors will likely see no return after the company’s debts are satisfied.

It is critical that entrepreneurs plan a positive exit strategy when pitching angel investors. Investors understand the risk of investment and also know that markets change and what’s was once intended may be derailed, possibly redirected, or entirely reset. Therefore, it may be advantageous for the entrepreneur to create and explore multiple exit scenarios to use when approaching different investors. This strategy may be better than a “single window” exit in that it allows the investor to think about how various options might impact their initial investment (Mahapatra, 2014). Moreover, doing so gives the entrepreneur a better understanding of the nuances of exit strategies and demonstrates to the prospective investor the entrepreneur’s thinking about business. Positive exits are about mutual wins. And the best way exit positively is to lay the groundwork from the beginning.



Amis, D., & Stevenson, H. (2001). Winning Angels: The Seven Fundamentals of Early-Stage Investing. London: Pearson Education Limited.

Mahapatra, T. (2014). The Exit Phase of Individual Angels, Angel Syndicates, and Corporate Angels. Journal of Management Research, 14(2), 87-100.



4 thoughts on “How Angels Exit an Investment”

  1. Great explanation of the chapter! I think it’s important to have an exit strategy that an entrepreneur can work towards. I am the type of entrepreneur that wants to build a large business so that it can be sold. I want to repay my investors, make a lot of money, and start my next venture so that I can leave my mark on multiple industries that I enjoy.

  2. Thanks, Alex.

    I think your plan sounds like a good one. Decide how much is “a lot” or better, “enough” up front and devise an exit strategy that aligns with your decision.

  3. You make a good point in highlighting that different investors may desire different exit strategies. I suppose it’s like anything else – people have different life circumstances and that gets reflected in what they would like to see when it comes time to recoup on their investment. Nice post.

  4. Thanks, Nick.

    I agree. We all bring a lot of ourselves to everything we do–history, education, experience, and more. That makes each deal a little different, doesn’t it?

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