Exit conversation pre-founding
Last week I attended a meeting with an entrepreneur raising developing capital for his Software company.
In a 45 minutes meeting, he spent over 15 minutes talking about exit, exit strategy, potential buyers, valuation multiples and what he will do post exist.
How much time an entrepreneur should spend talking about exit in a pitch?
I believe that 1 page in the Investment Pitch is enough and that not more than 5 minutes should be spent discussing the exit strategy.
While I understand that part of the exit conversation is for the benefit of the investors alluring the potential for great IRR and Return, l also believe that it can tell something about the personality of the entrepreneur and the level of commitment for the company.
Personally, I like to see an entrepreneur excited about the growth potential for the next 10 years, talking about his/her plan to create a winning champion in the industry (it never takes just 5 years! Unless you are Facebook or Google..) and potentially translate founders skills into CEO materials. Those are the conversations that matters for an Angel Investor.
If a company execute their disruptive strategy well, gain scale, leverage its competitive advantage a great exit will naturally follow and consequently strong financial return for both investors and entrepreneurs.
I believe that skilled investors are able to do their own assumptions about exit multiples and potential buyers; if they are not able to do it its means that they do not understand the sector and consequently they should not invest in the company under analysis.