When it comes time for harvesting a business, there is a sense of holding one’s breath in anticipationd, waiting for the magic to rain money from sky. Or at least that is how I envision the harvesting process. There is one crucial thing that determines harvesting, a magic word, if you will. The entrepreneur must be willing to EXIT.
That said, there is an inherent difficulty in planning a lucrative exit in an arts-based business that relies on the creativity of the founder. Just as there can be issues surrounding control with angel investors, there can also be issues surrounding how to grow the business beyond the creative entrepreneur. The entrepreneur must be willing to relinquish a certain amount of control in order to create market opportunity. Otherwise the business will likely never have a chance at a lucrative exit for investors.
In Winning Angels: The 7 Fundamentals of Early Stage Investments, authors Amis and Stevenson state that “harvesting is the endgame of early-stage investments” (287).
“Perhaps the best impact an angel can have here is to facilitate the interaction between potential buyers, bankers and others that could provide an exit event for the angel and entrepreneur” (Amis & Stevenson, 287).
Short of filing Chapter 11 or Chapter 7 bankruptcy, most other harvesting methods will create a measure of success for the stakeholders. If the company is performing poorly, sometimes these less than ideal exit strategies become the best choice. Amis and Stevenson state “strategic sales are the most common harvest method, followed by financial sales, and IPOs (initial public offerings) which are rare” (323). If an entrepreneur is willing to harvest the business, the angel investor can leverage connections to venture capitalists to find the right kind of exit. Venture capitalists are professional harvesters, keen on creating lucrative exits for stakeholders. If the entrepreneur and angel investor planned for harvesting early in the start-up process, then venture capital should be quite welcome. All the hard work creating the business, building relationships, and weathering the storms of a growing a start-up will have their reward for the angel investor, and hopefully the entrepreneur as well.