Many angel investors have asked me, how long does it take after an investment to exit from it? While there are some very inaccurate theories floating around about the range being from 6 months to 3 years to 10 years, let’s look at the data that we have been collecting for the last few months for our upcoming foray into the venture capital fund space.
Usually, an angel investor invests in the early stages of the company, the angel/seed round and typical exit scenario for an angel investor is in Series B or C round. Looking at the data that has been collected by us from Tracxn, it is pretty clear that while a company takes about 11 months to raise a Seed round, they take about 5 years to raise their Series C round on an average.
As a safe bet, I would say Series C in the timeline of a company is where the investor can get maximum value for his investment.
This is because typically at Series A the valuation multiple is quite low, in the range of 4x to 5x of the angel round. While at Series B you’re at something like 20 – 25x, which can be good, but if the company has a strong venture capitalist like Sequoia capital or Lightspeed or Axiom, the kind of investors who would continue to invest large sum in the Series C and Series D rounds, it makes sense to continue to hold on to that investment through Series B until a Series C or Series D.
You can take a look at this chart which shows that the timeline for a company to raise a Series C round from inception has come down dramatically and continues to probably fall.
Even though, there is a glut right now in Series A scenario, there will eventually be an uptick and the timeline of around 60 to 72 months is what I would say is a safe bet for an angel investor to expect a return on his investment that will commensurate with the risk that he has taken by investing in startups.
I like to cover one thought a week that I can answer through my blogs. If there are any questions that investors have, you can email at social@anirudhdamani.com and I will look at choosing the most commonly asked questions and answer them through this blog.
