Supporting and Harvesting – Winning Angels

Winning Angels: the seven fundamentals of early-stage investing

Winning Angels: the seven fundamentals of early-stage investing

Supporting and Harvesting

Supporting

Supporting is just what it sounds like, how will the investor support the venture to help the business grow. There are five different roles that an investor can fill to support the business.

A silent investor is a person that helps the business with an influx of capital to facilitate growth. After the investment process, the investor has very little input into the business.

A Reserve investor is a person that the entrepreneur can lean on and call out for a lifeline. This kind of investor knows bureaucracy and strategies to help the entrepreneur navigate hurdles that they haven’t encountered until this point because of growth.

A coach is the role of an investor that has the biggest influence of business short of the actual owner. A coach is a person that has regular meetings with the owner and gives advice and assists the owner to steer the business. The keynote of a coach is they are on the sidelines and not an active player on the field.  

A controlling investor is a person that takes control of the business by buying out the entrepreneur. This role has a huge impact on the business and is as much if not more time consuming than being the entrepreneur in the first place.

A lead investor is a role for an experienced investor. The lead investor is the person that is the head or leader of all the investors. This person is in constant contact with the entrepreneur and the investment team. The lead investor is the go-between of these two parties.

No matter the role that the investor chooses, there needs to be communication between the entrepreneur and owner before the supporting phase to layout what the roles will be. To maintain the relationship, the investor needs to continue to fulfill that role until completion, a time when no longer needed, or when either party can’t fulfill the role (at that time a conversation needs to take place).

Harvesting

Harvesting is the phase that all investors want to achieve. Harvesting is the point in the investor and owner relationship in which the business can fulfill the terms of the agreement and pay the investor back. The owner should have the final phase in mind, but they might only view it a step and focus on the nest one. Investors have the burden of making the decision when the time is right. Just because the business goes public or they have the capital to buy out the stock, it might not be the right time because of growth might yield a higher return if they wait.

Something to remember is not all exit is successful. There are plenty of businesses that fail or must file for bankruptcy.  All the phases up to the harvest will determine how the investor will be compensated at the time of failure. Even with the most active investor who has attempted to emplace as many safeties as possible, the outcome can be a complete loss. All investors know from the first meeting that the harvest may never arrive. The hopes of investors are all about playing the numbers if they make enough investment that if only one out of ten is a success then they will have a big payout.


Source –

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.


3 thoughts on “Supporting and Harvesting – Winning Angels

  1. The silent investor could be a great option for a seasoned entrepreneur, but I imagine those without a large network and a lot of experience would want their investor to be somewhat active. Silent investing could be a great way to generate passive income but also leaves the angel with little ability to influence business decisions if they need adjusting. It would be interesting to read about how outcomes are correlated between the types of support and the types of harvesting.

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  2. The majority of investments for the majority of angels are not winners, something that was alluded to in the chapters on structuring, but emphasized in harvesting. Even seasoned professionals who have entreprenuerial backgrounds or a depth of experience in the particular business category will have losses, sometimes significant ones. Which is why the statement that those who can walk away and live to fight another day have had valuable outcomes, too. The insight one gains from failures should propel them to success in the future.

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  3. Hi Dustin,

    I got a couple points from the book a bit different than you, A coach is very important to the business, but it is only the most influential behind the person who controls the business not necessarily the owner. The owner is not necessarily the person who controls the business. An entrepreneur could own the majority of the shares of a business, but not be in control. This is where I think your controlling investor is a bit off. A controlling investor doesn’t necessarily have to buy out the entrepreneur to have control of the company. On page 250 of Winning Angles the definition is “An investor who really becomes the entrepreneur by taking control (outright or through conventions) and manages the company. There are a number of conventions that could allow for an investor to have control but not own the company. Maybe there shares are in a different class that gives more voting power, perhaps they control the budget, or the majority of seats on the board. It seems odd but some entrepreneurs may go this route to secure the right angel investor
    https://startuplawyer.com/seed-rounds/angels-asking-for-control

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