The Long Road Ahead: Data from Personal Investment Experience

“It’s easy to write the check.  What’s hard is getting your money back.”  This is a paraphrase of something my good friend Bill Payne once told me.  Bill was a prolific and successful angel investor, a Han Severiens honoree of the Angel Capital Association and, along with his wife Ann, the namesake of the Ann and Bill Payne ACA Angel University.  

What did he mean by that?  For one thing, it means getting to the exit can take a VERY long time.   

I’ve been thinking about that a lot as we recently wound down the first angel fund formed by the members of the Boise Angel Alliance. Formed in 2007, the Boise Angel Fund finally liquidated the last of its 15 portfolio companies in 2024, 17 years after formation. For most of us who expected a fund life of 10 years (this is the standard term in most fund documents, even today), this was a long and painful learning experience. Clearly the rule of thumb of ‘5-7 years to exit’ is no longer true, or maybe it was never true? I decided to explore some actual data on time to exit. 

Data

In 2010 my long-time business partner, Denise Dunlap and I formed Loon Creek Capital Group to provide services to angel funds and special purpose vehicles (SPVs).  Now in our fifteenth year of providing these services, our clients have invested in hundreds of companies. In addition, since 1997 I have invested, either personally or through angel funds I helped create and manage, in 77 different companies.  

An analysis of time to exit for both Loon Creek’s clients and my personal investments yielded the following:

• 87% of all SPVs formed by clients of Loon Creek are still in existence.  In fact, the first SPV we formed in 2014 is still in business waiting on an exit of the underlying portfolio company.

• 34% of my personal investments still have not exited, even though my last personal investment was made seven years ago in 2018. (Given how long exits take, I “aged out” of angel investments when I had my 73rd birthday.)  My oldest investment still in business and not yet exited was made in 2008, 17 years ago.   Now after reaching my 80th birthday, I still am waiting for 26 exits, be they positive or negative, before my angel portfolio will be completely liquidated.  My children and grandchildren may be celebrating, but my wife and I definitely are not!

  
  

Implications

• Expect some of your investments to take a very long time to exit.  This not only has cash flow consequences but may well have estate repercussions as well.  

• Insist on redemption rights.  This is the right to require, generally after a period of time, that the company redeem your shares at some agreed upon price, generally cost plus some modest return.  While the company may not have the cash to do so, the fact that you have that right can force a conversation.   I have a number of zombies in my portfolio where I would love to be able to force this conversation. 

• If you use a service provider, make sure they have an incentive to support you and a business model that allows them to stay in business until exit.1 Loon Creek charges both a set-up fee and a wind-down fee to assure we are compensated for work that may come many years after we were paid to set up the entity.  

  
  

Post log

I continue to be a fan of angel capital, both from an asset allocation standpoint in personal portfolios as well as believing society is better off when entrepreneurs can acquire capital.  However, age reality suggested that if I wanted to continue to deploy personal capital in early-stage businesses, a different investment strategy was needed, which is why my partners and I started Sage Growth Capital in 2019. This model allowed me to continue investing in promising companies while enjoying return of capital much sooner. 

At the recent Angel Capital Association Summit in Denver, the common theme among mature angel groups was the need for exits and liquidity. If angels do not have a way to get their money back, eventually they will stop investing. Many of these groups are considering innovative ways of providing that liquidity, including alternative investment structures and writing different terms into their deals that allow for an exit. I am glad to see these discussions taking place and look forward to what this next generation of angels creates!

About

Kevin Learned is a long-time angel investor, co-founder and partner at Loon Creek Capital. He is the 2024 Hans Severiens honoree of the Angel Capital Association and served six years on its board. He is currently enjoying his role as Grandpa and pursuing his interest in other things not having to do with early-stage finance!

Loon Creek specializes in Fund and SPV formation and administration services for private investors (and for the companies in which they invest). You can learn more about our services on our website.

1 Assure was a provider of SPV services that charged only a front-end fee but purported to service SPVs for life.  Companies can’t stay in business if their revenue model doesn’t compensate them for continuing to provide services, sometimes for many years.  Assure failed in 2022, stranding hundreds of investors who thought they had paid in advance for lifetime services.  While I don’t know the details, my view is they were doomed to fail from the start, as their revenue model only compensated them for new business, not for serving old business.