Abstract
Although there are a handful of studies on business angel investment returns, the business angel literature has given little or no attention to exits and the exit strategy. This is surprising given that a primary objective of investing is to achieve a capital gain through some form of liquidity event. Using the theory of planned behaviour (TPB) as an interpretative heuristic, we examine how exits happen: specifically, what are the motivations to seek an exit and to what extent are they planned or opportunistic? Based on multiple case studies in which business angels were invited to tell the story of their most recent exit(s), the evidence suggests that the majority of liquidity events are the outcome of planned behaviour. We propose a typology of angel-backed investment exits as the basis for identifying future directions for research and developing practical advice to angels on effective business practices.
Highlights
The exit is where you get your money back, you hope, with return, even better, and possibly a very good return, better still. (Cowley 2018)1 Keep in mind that angel investors invest for returns.2Business angels achieve their financial returns through exits
Using the theory of planned behaviour (TPB) (Ajzen 1988, 1991) as an interpretative heuristic, we examine the argument that exits are the outcome of planned strategic decisions (Peters 2009; McKaskill 2009), drawing on evidence from 17 case studies of angel-backed companies where the angel was able to achieve an exit
The majority of applications of TPB in entrepreneurship have focused on explaining intentions in the venture creation context, with fewer applications in the explanation of behaviour or in the context of venture development (Table 1) or wider entrepreneurial contexts such as opportunity recognition, innovation, angel investment, entrepreneurial networking and entrepreneurial turnover and exit (Ramos-Rodriguez et al 2010; Montalvo 2006; Maula et al 2005; Vissa 2011; Brigham et al 2007). We add to this literature by using TPB as a lens to examine a behaviour—the business angel’s exit strategy—not hitherto studied using this framework
Summary
The exit is where you get your money back, you hope, with return, even better, and possibly a very good return, better still. (Cowley 2018) Keep in mind that angel investors invest for returns.. We follow McDonald and DeGennaro (2016) in distinguishing between two types of ‘termination events’: (i) exits, which are outcomes in which the investor recovers all their original investment plus a premium (e.g. through an IPO, trade sale to third party investors or management share buy-back), and (ii) expirations, where the investment is written off or generates zero returns, typically as a result of the closure of the business. This distinction recognises, a priori, that these two types of event are different in terms of investor. On the basis of our exploratory analysis, we develop a typology of exits and highlight key research questions for future work
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