Every angel investor wants positive exits. Although great exits can take years to come to fruition, angels are willing to put in the time and effort to see the journey through. In the world of angel investing, oftentimes a “good year” equates to realizing one exit. When you can multiply that success by a few more exits, you’ve got a great year. But the real icing on the cake? When those multiple exits are quick exits.
The Central Texas Angel Network (CTAN) experienced the icing on the cake in 2015, with five positive – and fast – exits in one year. I recently talked with Rick Timmins, chairman of CTAN to find out what the Austin-based group did to get to these results and what other angels can learn from their story. Timmins shared some great insights on how to support entrepreneurs in the acquisitions process to drive win-win exits.
Most notable about their 2015 exits is the length of time from investment to exit. “The most surprising thing was how fast they exited,” Timmins said. Four of the exits happened within 10 to 26 months—impressively short time lengths, especially for so many in one year.
Returns for the five exits ranged from 1.5-6x the amount invested. The average investment per company was $300,000 to $400,000 in mostly web/ software companies. “We don’t see unicorn exits in Austin, but we do see $20 to $50 million acquisitions. Those kinds of exits are life changing for many entrepreneurs and investors.”
Timmins pointed to two main reasons for the good results: 1) the angels and entrepreneurs worked together early to identify strategic acquirers and 2) the companies were in market niches that garnered interest from acquirers. In listening to Timmins, I heard a few other good lessons as well.
Almost all of the companies had an angel investor serving as a board member. In all cases, board members and entrepreneurs worked to identify strategic acquirers from the beginning. “The acquisitions happened because the board members did a good job identifying potential acquirers and building relationships. Education helped build their capabilities,” said Timmins.
Recommended by Forbes
Education supports good early work
Education is key so everyone understands the acquisition process, how long it takes and how to do it. Looking back, one of the biggest differences in 2015 was the implementation of its Fall Education Day, which focused exclusively on how to exit in Austin. The event drew 60 portfolio members and 60 angel members. Speakers included experts in angel-backed exits, including entrepreneurs who had exits, angel investors and investment bankers. The event was so successful CTAN plans to continue it in 2016 and beyond. CTAN also hosts learning sessions throughout the year to learn from past exits and also attends professional events by the Angel Capital Association. Keeping metrics also helps to understand what these successes have in common.
Match corporate needs
All of the CTAN portfolio companies were in market niches garnering significant interest from acquiring corporations. “Our portfolio companies fit nicely into the product offerings of potential acquirers,” Timmins said. For example, when Microsoft announced its acquisition of CTAN portfolio company Incent Games, the makers of a “sales gamification” platform called FantasySalesTeam, Microsoft said it will make this feature available to its own customers in order to help them incentivize their sales teams and achieve better results.
Two companies had very experienced entrepreneurs—these were also the two biggest returns, delivering 2X the returns of the four other companies which were led by first-time entrepreneurs. But this hasn’t dissuaded Timmins, “We still invest in first-time entrepreneurs, because we believe in that.”
Be part of your community fabric
All angels look for companies with potential—but where is the best place to look? As Timmins points out, a key strategy of the group’s 140 member angels is to integrate into the fabric of the local startup ecosystem to attract good deals. Two of the exits originally came via local accelerators. With 7,000 hours of volunteer time at incubators, accelerators and other activities, CTAN members connect with strong opportunities and also vet startups early on through mentoring activities. As angels, it is important to see as many good opportunities as possible to eventually get to good exits; you may not see commonalities of success when you first invest.
Realizing five positive exits in a single year is hard work. It requires a solid foundation infused with education, support and strong partnerships. Angels don’t expect these results every year, so Timmins says, “We always have big parties to celebrate our exits.” I’d love to get an invitation to one of those parties. Better yet, I hope to use these insights to plan one of my own.
This article was first published by Forbes and was written by Marianne Hudson.
"I am an angel investor and Executive Director of the Angel Capital Association (ACA), the world’s leading professional association for angel investors. ACA is focused on fuelling the success of accredited angel investors who support high-growth, early-stage ventures, and has more than 12,000 member angels across North America. I know one thing for sure: there is a method to the madness. In shaping ACA professional development programs and public policy advocacy, I have the opportunity to hear firsthand from experienced angels and the ecosystem at large—what works, what doesn’t work, and strategies to consider for everything from getting started as an investor, to finding great deals, to supporting the companies you invest in to growth and exit. I know about trends and impacts of angels and innovative startups too. Earlier in my career I ran the angel initiative at the Kauffman Foundation, which led to ACA and the Angel Resource Institute, and where I also oversaw entrepreneurial education and mentoring progra designed to ensure that more entrepreneurs develop sustainable, innovative businesses. I love entrepreneurship and have worked in supporting fields for more years than I will admit. I am a member of two angel groups in Kansas City and also connect with several accredited platforms."