Understanding Angel Investing Exits

Don’t get me wrong… 

I love a big juicy steak.

But if I ate steak all day… every day…

I’d probably get sick of it.

What’s one thing I’ll never get tired of?

Cashing In Big…On One Of My Startup Investments…



That will never get old!

But before you can have that sweet taste of victory in your mouth…

It all starts with finding great early-stage companies to invest in.

And if you don’t have a deep network to tap into…

Or the expertise to spot startups with potential… 

You’ll probably never be successful in this space. 

That’s why I started my service Angel Investing Insider––to give those just starting their journey…

Access to hot startup deals and the best foundation of education around. 

I hope one of your startup investments lands you a massive payday!

Now, if you’re wondering what exactly to look for…

In a successful exit plan…

I’ve put together this quick little guide to help you out.


All angel investors are after one thing — a successful exit.


But to experience an exit, you first need to start investing in startups that are primed for success.

You see, angel investments are different from other types of investments like public securities. 

When you invest in the stock market, you have the option to buy or sell at any time. This type of investment is “liquid”.

But, when you invest in early-stage companies like startups, you don’t have the option to sell when you feel the time is right. You need to make your assessment, invest, and then stick along for the ride. 

There isn’t a market willing to buy your shares. And usually, selling shares of these companies is restricted by law.

This is why exits are always on our minds. Angel investments are long-term investments. You can’t just go and sell when the rain clouds appear. The only way to complete your investment and get a return is through an exit.

Is this a bad thing?


This added constraint and unique investor-investee relationship are what make the risk and reward on seed investments so high. 

That’s why seed investments have a greater return potential than any other type of security.

To make this work to your advantage, you will need to be diligent, informed, and know everything there is to know about exits.


What Is an Exit?


An exit is your opportunity to cash-out.

After searching for your startup, assessing it, investing, and waiting, an event will come where the company is going to change drastically and you will be able to sell your shares.

This usually takes 3-5 years, but can take up to 10. Again, this is a long-term investment and requires patience. 

This exit event can come in many shapes and forms. This includes Initial Public Offerings (IPO), acquisitions, and even bankruptcy. More on this below

If everything goes according to plan, an exit will yield huge returns. I’m talking 20x to 100x your initial investment.

Now, let’s explore the different types of exits, why they happen, and how they affect you, the angel investor.




The first and most desirable, type of exit is an Initial Public Offering or IPO.

Only companies that have established themselves within a market and garnered significant success and attention can reach an IPO. 

When a startup “goes public” it sells shares to the public through investment banks and stock exchanges. Here, any investor can buy stock and become a partial owner.

An IPO is usually the finish-line for seed investors. This is the golden opportunity to sell your shares and reap huge profits.

However, some investors actually choose to keep their shares and stay tied to the company hoping for more money in the future. This is very case-specific and depends on your goals as an investor. 

Most of the time, if a company you invested in reaches an IPO you will be joyously ready to sell your shares and enjoy the fruits of your labor.

An IPO is one of the longest routes to a successful exit.




A more common (and still very desirable) type of exit is an acquisition.

When your startup is acquired, it is purchased by a large company that either wants its technology, intellectual property or wants to seize its market share.

Whatever the reason, an acquisition usually translates into a hefty return for a seed investor.

Here’s how it works.

When a startup’s value is high enough, business suitors are bound to come knocking. A negotiation takes place and assuming everything goes well, the startup is sold. The buying company purchases the startup and takes over its operations.

Because you, an angel investor, are a part-owner in the startup, your ownership needs to be purchased. This is when you can sell your stock in the company. 

Usually, the company’s valuation at the moment of acquisition is much higher than it was when you invested. A high exit-valuation means a big return for you, the early-stage investor.




An acquihire (acquisition + hiring) is when a startup is purchased for its team. 

This usually happens when the buyer is interested in the team behind the product rather than the product itself. The buyer is paying for talent.

When the startup is sold, employees will be transferred to the new company, usually with lofty hiring bonuses. 

Acquihires can still be profitable exits for angels. A benefit to investors in this type of exit is that it usually takes place earlier than a normal acquisition. 

In a normal acquisition, a startup needs years of experience and success, solidifying itself as a market leader. But, in an acquihire, a startup only needs to show the competence of its team.


Other Types of Exits


There are a few less common types of exits to be aware of. These are usually less desirable than IPOs and acquisitions.

  • Management buyouts – In this scenario, the founders of the startup buy back all of the shares from investors. This represents an exit moment for an investor who can sell their shares to the new owners.
  • Sale of secondary shares – In some cases, you will be able to sell your shares directly to another private investor. 
  • Asset sales and bankruptcies – This is the least desirable exit for investors. You may still get a return in the process of the startup’s dissolution but will depend on the distribution waterfall.


Distribution Waterfalls


One last thing to understand about exits is the distribution waterfall.

A waterfall refers to the order in which investors get paid back. 

This only applies to low exits that don’t generate big profits for shareholders. When there isn’t enough money to go around, the most important people get paid first. 

Here is the most common structure of a distribution waterfall:

  • The first to get paid back are debt holders, like banks and lenders who are owed money. 
  • Next, preferred shareholders get paid. These are usually angel investors and venture capital firms.
  • Finally, common shareholders, founders, and employees get paid.


Exit Stage Left


Now you can see that there is a hierarchy of exits. 

Angels need to invest with an exit strategy in mind, but not every exit is a good one.

An IPO exit is uncommon but usually extremely profitable. Acquisitions are faster and more common and still have incredible return potential. 

The majority of all startup exits take time, and you need to be prepared to play the long game. Don’t worry, the wait will be worth it because a successful exit off of a seed investment has the biggest return of any investment around. 

Risk-tolerance and patience are essential traits for an angel investor. The path may be difficult, but the rewards create wealth unlike anything else.

Understanding exits is as important to angel investors as deal flow. The best way to achieve a successful exit is to invest in a startup that has all the markers for rapid growth and stability.

Our angel investing community, Angel Investing Insider, gives our members access to startup opportunities that are hand-picked by experts. 

Not only will you have the opportunity to invest in these companies, but you will have access to the rest of the AII resources. This includes online classes, video lessons, and an angel investing community.


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