Startup Funding Espresso -- Why Use an Early Exit Deal Structure
Startup Boards -- Why Use an Early Exit Deal Structure Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. In startup funding, 65% of the investments after three years are still in business but are no longer on the venture track.\xa0 In most cases, they are growing businesses but are not going to be bought out for a significant return to the investor. The market conditions changed, competition took over, or the founder was no longer interested in keeping pace to achieve a venture exit. The best-case scenario was the entrepreneur would sell the business for 2 to 3X after 10 years, in which case the investor would get a minimal return. In my investing experience, three years into the investment, it becomes clear if the company will continue on the venture path or not.\xa0\xa0 This was due to competition in the market, a difficult fundraising environment, or just plain poor performance by the company. The entrepreneur signals their departure from the venture path by taking above-market rate salaries.\xa0 I call this taking the \u201cpayroll exit,\u201d in which case they no longer needed an \u201cequity exit.\u201d\xa0\xa0 This leaves the investor stranded on the equity plan with no way out. It\u2019s very difficult to negotiate a buyout from the startup for the investor's shares since there\u2019s no market for setting the value. An Early Exit deal structure gives the investor a way out of this situation which is far too common in the startup funding world. Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.Let\u2019s go startup something today. ___________________________________ For more episodes from Investor Connect, please visit the site at: \xa0 Check out our other podcasts here: \xa0 For Investors check out: \xa0 For Startups check out: \xa0 For eGuides check out: \xa0 For upcoming Events, check out \xa0\xa0 For Feedback please contact info@tencapital.group\xa0\xa0\xa0 Please , share, and leave a review. Music courtesy of .