The Fastest Way to Claim a Return on Your Angel Investments
If you want to succeed as an angel investor, you need to be willing to wait.
Angel investments aren’t like stocks. You can’t buy, hold, and sell as you please. When you write a check for an entrepreneur, you’re essentially locking that money up – and it may take years to see it come back.
At the Angels & Entrepreneurs Summit, Shark Tank‘s Robert Herjavec and I talked about this. A lot. You see, the long timeline you can expect from angel investments is truly unique – and, in my opinion, it’s actually a positive, not a drawback. Just click here to learn why – and how to use that time to your best advantage.
Now, conventional wisdom states that you should be prepared to sit on your hands for up to 10 years; but in reality, the average holding time is between two and four.
But there’s one little-known way that many angel investors are able to “take the money and run” – way ahead of schedule.
Here’s how they do it: they sell their shares to another, bigger angel. Or, in even better cases, to one of the institutional investors who show up later in the game.
This doesn’t happen extremely often – in fact, some deal terms won’t allow you to sell your stake at all. Still, it’s a real possibility. And, with startups waiting longer than ever to go public, big investors increasingly need to seek out other ways to buy into early-stage businesses.
Be wary, though, that if a big dog is sniffing around your stake… you may not want to sell it. If venture capitalists want to chomp up your equity later in the game, you can bet it’s because they’re seeing dollar signs. So, if you can afford to hold your stake a little longer, you should seriously consider doing so.
Sometimes, though, you just want to be done waiting. Or maybe you’ve run into some financial setbacks and feel you’d benefit more from selling than you would from holding. Or maybe you have your eye on a new car.
Whatever your reasoning, if you want to make an early exit, ask a lawyer if your terms will allow you to liquidate your stake. Or, better yet, talk to the entrepreneurs themselves. They may know of someone else in the network who’d be interested in buying.
The worst-case scenario? You hold onto your shares and watch them grow a little longer, then cash out with everyone else when the startup makes it to an exit.
Would you rather cash out a 3X in two years, or a 1,000X in 10 years? Leave a comment below and share your thoughts!
Until next time,
Neil Patel
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6 responses to “The Fastest Way to Claim a Return on Your Angel Investments”
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August 06 2019
I would Mix and Match, i.e cash out few in short term may be 2-3 years for some Immediate needs , while Holding on to some Investments to grow for 10+ years to have a Hefty paycheck.
Evening NEIL and partners Approximately a year ago I invested into
MYM NUTRACEUTICALS. Bought at .46 cents I bought 2000 shares. What is your opinion? Of this penny stock
Since I have also invested in. Aurora and aphria.
Thanks.
Way to go only invest what you can lose and hope for the best. Some get lucky some lose it all
how to start the business
I was reading the “offering” of a company, and it says, “Equity should only be undertaken by persons whose financial resources are sufficient to enable them to indefinitely retain an illiquid investment.” In Lay terms, I understand this to mean that if you can’t live for several years without the money you are going to invest, then you shouldn’t invest. Is that right?
Also, How do you know if you are getting common or preferred stock?
Lastly, Does a company ever pay dividends BEFORE its IPO?
Thanks
Can I talk to Mr Patel. Directly. V imp for me. If possible. Pl confirm the date and time by phone. I need tel no also. For mr Patel. Thnks