Monday, November 15, 2010

Early Exits

Angel investors and VCs all like to sell one of their portfolio companies. This is called the exit.

Basil Peters, a famous angel investor wrote a book Early Exits - Exit Strategies for Entrepreneurs and Angel Investors (and maybe not VCs). Yes - the title includes the maybe not VCs part.

His thesis is that most businesses sell in the $10-30M range so it is best for angel investors to push for a sale at that point which can provide a great return for the angels and for the entrepreneurs rather than holding on, raising VC funds and trying for the big IPO or $100M+ sale.

The theory is VCs muddy the water because they tend to want to big win and push the entrepreneurs to hold on for the big exit often to the point of having the business fail. I have heard VCs say they would rather lose all their money trying than exit for a modest profit.

I like the theory. I like small wins. They suit my conservative risk profile. Better to take a small profit than always wait for the big one.

But I do not like the theory if it is the only way. As with many things, there is no right answer. Where would RIM be if they had sold before they went public? I doubt they would be $15B in sales and $2.5B in profit.

And I love the $100M exits. Not only for the returns but for the intensity. And it tends to be the big exits that leave meaningful marks on an industry and change the way things are.

For me - I like both. There is a right exit for everything.


I read Smart Moves Management - Cultivating World-Class People and Profits by John Thedford.

Thedford is the founder of a chain of pawn shops - Value Financial Services. This gave me the wrong knee jerk reaction to start. I am borderline to thinking pawn shops prey on the poor. He did give some interesting pawn shop stats - 80% of what people pawn, they reclaim. Only 0.1% of what is pawned is stolen.

And he has succeeded in a very tough industry in growing a $100M+ company.

Thedford is straightforward about why he wrote the book. To attract staff and to gain business. I liked his refreshing attitude on this.

The big thesis is "pay people well and put them in the right positions". He also thinks he can hire the right people. I have always said despite our best efforts, we will hire average people. It is managements' job to make them above average. This is done through slotting people properly into the right job, Giving them the tools to do the job well. Designing the job to "work" and constantly refining it to make it better. Some coaching and mentoring. Lots of training. Treating people with respect. And finally inspiring them.

He offers 41 "Smart Moves" on what a business should do to thrive. EG Smart Move 26 - Discover the Benefits of Long-Term Training Programs.

I liked chapter 11 on "real profits". He correctly points out that many companies do financial engineering moves and make short term decisions in the short term interest of profits while sacrificing the long term business. (Smart Move 41 - Make Profits Possible)

It has a good bibliography of business books. Likely worth reading all of them.


At 5:42 PM, Blogger Unknown said...

Go John Thedford! La Familia Pawn and Jewelry lives by the SMART Moves Strategic Path!


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