TEN Capital helps you find an exit using the Early Exit Deal Structure
About 50% of startup investments don’t reach a positive exit. Instead, they turn into lifestyle businesses.
You should avoid the lifestyle business as it gives the investor neither a return nor a tax write-off.
TEN Capital’s Early Exit Deal Structure uses a convertible note with a 3X in 3-year redemption right at “investor sole discretion”
TEN Capital provides an online platform to post our early exit investment opportunities, including a pitch deck, deal terms, diligence documents, and updates about the company.
The platform uses a Special Purpose Vehicle (SPV) to collect investor interest for a fundraise.
Define the exit for your investment.
Choose between short-term exit or long-term equity investment.
Exit early from startups that don’t continue to grow.
The investor receives 3 times their investment 3 years from the date of investment. So $100K in yields $300K out.
I analyzed the results of several angel networks and found that 65% of the investments after three years were still in business but were no longer on the venture track. In most cases, they were growing businesses but were not going to be bought out for a significant return to the investor as the market conditions had changed, the competition had taken 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 internal rate of return.
In my investing experience, three years into the investment it became clear if the company would remain on the venture path or not. This was due to competition in the market, a difficult fundraising environment, or just plain poor performance by the company.
I often saw the entrepreneur signal their departure from the venture path by taking above-market rate salaries. I called this taking the “payroll exit” in which case they no longer needed an “equity exit”. This left the investor stranded on the equity plan with no way out.
Since there is no liquid market for private company shares of this type any effort to negotiate a buyout with the startup team was met with a firm ‘no’ or an offer in the range of ten cents on the dollar.
Many investors want to build their entrepreneur community.
They find the 3X in 3 Terms Sheet a useful tool.
To provide funds to more startups you could take the proceeds from one investment to invest in more startups.