Have you ever attended a conference and felt so at home—like the attendees are really your people?  When I go to the Angel Capital Association conference, I feel exactly the opposite!  Most of the people I meet there don’t understand why anyone would be concerned about the impact of their investments beyond the impact of making the angel investors rich.  Most of the talk is bragging about that 47x exit that they got (i.e. they got a return of 47 times their original investment).  

I went ahead and applied to speak at the conference about “alternative” investment models because it is my mission to spread the word about non-extractive, sustainable ways to invest.  I was shocked when my proposal was accepted!  I decided not only to attend the panel I was on, but to attend the whole conference and try to keep an open mind.  Maybe the world of angel investing was starting to evolve?

When I looked at the agenda, I noticed that almost 20% of the sessions had the word “exit” in the title.  This, and the content of most of the sessions, confirmed that most active angel investors continue to rely on “exits” (via acquisition or IPO) to get paid.

The session I was invited to speak at was called “The Art of the Deal: Alternative Deal Structures.”  I decided to be honest about my opinion of the sacred cows of angel investing. 

Here are some excerpts of what I said:

“When we talk to angel investors about ‘alternative structures,’ there is an assumption that alternative structures are debt and that equity has to be structured using the typical angel/VC style term sheet. . .There are many ways to structure equity.”

“I wonder about the wisdom of relying on a big exit as the only way to get paid.”

“The model where you push for an exit is not appropriate for 99.9% of businesses in our country.  And that doesn’t mean those businesses are “lifestyle businesses” or not investable.  They could go huge.  Only 6% of fortune 500 are venture backed.”

“Women are less likely to found companies that are on the high growth path.  If you want to diversify your portfolio, focusing on that one structure may not be consistent with that.”

As you can imagine, my comments did not go over well.  Here is what some of the attendees said:  

“We need to keep deal structures pretty standard, especially if future institutional funding is expected.  Using the standard terms on the National Venture Capital Association’s website has been very helpful.”

“I believe the great majority of angel investors want to help grow companies to a successful exit.”

“Most angel investors want to invest in companies that will have an exit.”

“In MOST cases exit is the right path.”

“A lot of complex “creative” deal structures don’t really help . . . the reason the VC route happens over and over is because so many lawyers have a basic understanding.”

“I would argue that if the entrepreneur doesn’t want to drive to an exit, we shouldn’t have invested in the business in the first place.”

 

We did get a few supportive comments acknowledging that there is, in fact, a category of business that can be successful and grow big without having an exit.  Unfortunately, this seemed to be very much a minority view among the attendees of the conference.  My hope is that I might have planted some seeds that will bear fruit some day as more investors become increasingly open minded about investment structures that support a livable, prosperous, and sustainable world for all.