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VC Minute: Talking About Exits

By March 3, 2021March 21st, 2021Startups

Let’s talk about talking about exits.

I’ve started asking founders, “where do you see your company in five years?” The answer I hate to hear is: “we’ll have an exit by then.”

OK hold on. You and I both know that I have a fiscal responsibility to my investors to return multiples of their capital, and that I do this by having liquidity events from my investments. If you think that telling me you’ll sell the business in five years is what I want to hear, you’ve got it wrong. It actually throws up two major red flags.

First, entrepreneurship is hard. Really, really hard. If you are only in this for the money then you’re not going to have the grit to push through all unforeseen gut-wrenching, keep-you-up-at-night problems that will come your way. There are dozens of studies that show money is not a prime motivator. If you’re only in this for the money, then you don’t have enough motivation to get through the hardships.

Second, while it’s true that I am looking for exits, what I’m actually looking for are return-the-fund exits. I’m not looking for a dozen companies to return 2-3x, I’m looking for one company to return the whole fund—and then some.

Here’s some quick math: if I have a $20MM fund and I own 2% of your company on a fully diluted basis at exit, that exit needs to be $1 billion dollars to return $20MM. That’s the kind of exit I’m looking for (Actually, I’m looking for more than that, but we can geek out on fund economics later.)

Are you going to get to $1B in five years if getting an exit is your primary motivation? Hell no. You’re going to take the first $50MM private equity offer that comes your way, because you’ll get a few million dollars, which will be amazing for you and I’ll be incredibly happy for you. I just don’t want to invest in that.

I want to back founders that want to change the world, not cash their chips in.

Listen to the whole episode here:
Startup of the Year Podcast Episode #0048 – Dr. Ximena Hartstock Discusses Ideas That Change The World

Ximena is the Co-founder of Phone2Action, the world’s leading technology company for civic participation and stakeholder engagement. The platform has empowered millions of advocates to make over 40 million connections with elected officials. She is passionate about education and about empowering people to take action to make this world a better place. In addition to running her own companies, Ximena is a member of the board of directors of Consumer Technology Association which produces CES and she is also on the Forbes list of Women Crushing it in Technology.

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