The word “harvesting” is used often and in a sense self-explanatory. I still found the “visual learner” in me enjoying the farming analogy used to depict the concept. As noted in the book, farmers know the likelihood of a good harvest long before the harvesting equipment is brought out of the barn. Unlike this analogy, many entrepreneurs will leave money on the table as company value tends to increase after selling (Amis & Stevenson, 2001). As such it can be helpful for investors to help assist with the interaction between potential buyers, bankers and other forms of exit. Strategic sale tends to be the most commonly used form of exit, with an estimate of thousands happening each year (Amis & Stevenson, 2001). This exit strategy is also known as harvesting, which is the endgame of early-stage investments. This endgame is essentially a financial measuring stick of success.
There are five positive harvest methods as well as two negative ones. The five positive methods are as follows: IPO, strategic sale, walking harvest, partial sale, and financial sale. The two negative methods can be seen as “harvesting whatever time or cash savings remain” (Amis & Stevenson, 2001). Each method has risks and benefits associated with them. Relatively speaking each partnership and business deal will have elements that are unique to the situation as well. As such, more experienced angels know to assess the prospects of their investments and apply the most fitting method accordingly.
There are winning tool tactics that have proven to be helpful with the harvesting process. Some of these tactics include: scaling out- scaling as soon as possible to recover investments; creating structural incentives- building incentives in the structure to motivate the entrepreneur to reach an exit sooner rather than later; and showing the future- helping the entrepreneur begin to identify opportunities for life after the company (Amis & Stevenson, 2001). The key is to keep in mind that harvesting, or the endgame, should be formulated from the beginning. Having an experienced investor in place to help navigate this process can make things easier for the entrepreneur. It can also strengthen the deal as well as the likelihood of a successful future for the venture.
References:
Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.
Art is Life's Paintbrush 
Hi Shay,
I enjoyed your post and appreciate you mentioning more than once that it’s important to begin with the end in mind. Whereas entrepreneurs may have a vision for their business or product, I would think it’s less likely that they’ve thought deeply about selling their business or an exit strategy. Conversely, investors enter the deal with a belief in an exit that includes a profit and with no intention of being involved with the business indefinitely.
To this point, it might be helpful for entrepreneurs and investors to reverse engineer a plan i.e. agree on when/why/how their business relationship will end at the start of their time together. Since emotions can complicate this process, a third-party might be helpful to facilitate this discussion.
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Very thorough post Shay!
I really didn’t know what to expect for the section on this fundamental before I read it. I didn’t understand there was so much thought and strategy that went into getting the profitability out of your investment. Getting to the exit opportunity seems tough enough, having the strategy to exit is another,
Good job!
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Hi Shay,
This ending chapter was certainly full of a lot of important concepts to digest, and I think you did a good job highlighting some of the most important. I agree that there doesn’t seem to be any one-size-fits-all strategy for exiting, as there are simply too many variables to consider. If I ever get to the point of being an angel investor, I definitely intend on utilizing the experience of those who have been doing it for a long time.
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