ENT640 Harvesting Blog Week 7
Here we all are. We are finally at the end of the book for this course. My brain feels burnt out and it feels like mush, just like mashed potatoes right now. Everything was starting to blend together and seem redundant. At the same time, I have gained so much knowledge and learned things about financing that I’ve always seemed to overlook because I didn’t have the patience to learn, or it was just overwhelming.
What is harvesting? When business angels or VCs put money into a business, there needs to be a way they can realize their investments in the future. This is called the exit or harvest.
There are 5 types of Positive Harvests:
1. IPO (Initial Public Offering)
2. Strategic sale
3. Walking harvest
4. Partial sale
5. Financial sale (287).
1. Walking Harvest- The company distributes cash directly to investors on a regular basis.
2. Partial sale– The investor’s stake is sold to management, to another shareholder, or to an outsider.
3. Initial public offering- The company sells a percentage of its share which are listed on NASDAQ, NYSE or another exchange creating market for investors’ shares.
4. Financial sale- The company is sold to financial buyers who purchases it for its cash flow.
5. Strategic sale- The company is sold to an industry buyer who buys it for strategic reasons, such as marketing synergies (290).
There are 2 types of Negative harvests:
1. Chapter 11- The company is recognized and the investors typically lose most of their upside.
2. Bankruptcy Chapter 7- The company is liquidated and investors, depending on their place in line, get little or nothing (290-91).
At the same time, negative harvests can be a great learning experience. They can shape you and help you grow. “Only those who dare to fail greatly will ever succeed greatly.” John F Kennedy (300).
VCs are the pros because they spend 75% of their time harvesting (306). What it takes to get a VC in a deal:
· A four- or five-star team
· Simple structure
· Compatible and value-added investors
· 60-80% returns
· The perception that there is a short fuse
· A hot area
· Good benchmark against competition
· “dot.com” in your name (304).
Something some of us may not like thinking about is we do not live on this earth forever. One day we will die. Or before we die, maybe some unexpected emergency will happen causing us to make drastic, life-changing decisions. This is why it’s smart and professional to be prepared for these instances. Here are extreme cases that can instantly and significantly affect your life and business:
1. Death (yours).
2. Baby, divorce, sickness, (visit by aliens).
3. Bankruptcy/financial trouble.
4. Personal move/career change (317).
Some or all of these instances will happen to you. Here is how you can become prepared for any of these situations:
· Keep a one-pager that lists your early-stage investments, how much, number of shares, place where the document is kept, contact name at company and contact name of your attorney (who should keep the originals).
· Make sure to let your spouse/attorney/children, etc, know about all of this.
· Name a power of attorney on those investments for when you die (317).
Amis, David, and H. H. Stevenson. Winning Angels: The Seven Fundamentals of Early-stage Investing. London: Pearson Education, 2001.