Harvesting…

Hello again Blog readers! I will be continuing to use Amis’s and Stevenson’s (2001) information regarding angel investing in their book, Winning angels: The seven fundamentals of early-stage investing. I will be sharing valuable information in this Blog from Amis and Stevenson (2001) about Harvesting.

Crawford (2017) notes that, “The purpose of the harvest strategy is to allow for equity investors to be repaid. Before making their investment, they will need to know the method of repayment and how long they will have to wait. The waiting period is normally three to five years. The actual length of time depends on the complexity of the company and the nature of its industry” (para 3).

Amis and Stevenson (2001) state, “Harvesting is the endgame of early-stage investments, the financial score by which you will measure your success. It is not as controllable as the decision to write the first check, but with advanced thinking and strategic action by both you and the entrepreneur, the likelihood of success can be increased dramatically” (p. 287).

What are the Types of Harvesting?

According to Amis and Stevenson (2001) there are seven different types of harvesting which include the walking harvest (taking cash out as it is earned), partial sale (the investor sells shares to management or to new investors), initial public offerings, financial sale (the company is purchased by a buyer with cash), strategic sale (the business is purchased by someone that knows the value of the company and is willing to pay for that value), bankruptcy, and Chapter 7. The last two types of harvesting of bankruptcy and Chapter 7 are negative and not what either the entrepreneur or the angel investor are ever hoping for. However, the better choice of the two negative harvesting methods is bankruptcy. (Amis & Stevenson, 2001).

Harvesting Should be Included in Your Business Plan:

Crawford (2017) notes, “When a business plan contains a harvest strategy, equity investors and lenders are assured that the owners intend to develop the business and eventually sell it, either to public investors or to another company. Management’s challenge will be to run the company correctly and turn it into an attractive investment candidate for others when the time comes for the exit event” (para 5).

The full article by Crawford can be found at the following link:

https://smallbusiness.chron.com/harvest-strategy-business-plan-52874.html

Points to Keep in Mind Regarding Harvesting from Amis and Stevenson (2001):

Think about harvesting from the beginning

At times, negative harvesting is your best option!

Let’s hope your end harvest is a happy and successful one!

References

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

Crawford, C. (2017, November 21). What Is a Harvest Strategy in a Business Plan? Retrieved May 23, 2019, from https://smallbusiness.chron.com/harvest-strategy-business-plan-52874.html

7 thoughts on “Harvesting…”

  1. Hi Kay,
    I like the article that you included from Crawford and talking about including harvesting in your business plan. I think that is valuable information that entrepreneurs might not think about.
    The points to keep in mind regarding harvesting was also a very good point to make.
    You did a great job with this blog post and you always provide great external articles.

    Great Job,
    Dani

  2. Kay,

    This chapter highlighted some interesting aspects of making a startup “grow” after negotiations. I mostly looked into IPO’s and how these are accomplished. I found it to be an risky, but quick way to raise capital to help support a startup that requires funds past the investment options of angel, venture, and family fund raising. According to Amis & Stevenson, they say that IPO’s have the potential to capture outstanding capital multiples, particularly in a bull market. Drawbacks include the high variability depending on time to sell, while adding the risk of missing out on possible gains. I look forward to working with you in the next class!

    – Paul

    Source:

    Amis, David, and Howard H. Stevenson. Winning Angels: the Seven Fundamentals of Early-Stage Investing. Financial Times Prentice Hall, 2001.

  3. Kay,
    I agree that harvesting, or an exit plan, should be well planned out during the business plan stages. It’s important to know when and how the founders will relinquish their positions, as well as when investors will receive their ROI. As Amis and Stevenson continuously honed in on, knowing that the intentions of founders is to exit at some point, becomes more attractive to investors.

  4. Kay,
    Nice review. I am really glad you called out the investors looking into aspects of harvesting prior to investing. I understand why it came at the end of the reading, but I believe it is key to know and understand the exit plan before fully investing in anything. It may be my military background, but a mission without an exit strategy is like making a meal and leaving it in the oven. This chapter has me thinking much more seriously about the exit strategy and what is important to me. It may be different by company and investment opportunity, however I think I will feel a lot better going through the different types of harvesting and knowing how I would approach each of them. Thanks for the read.

  5. Well said “Harvesting is the endgame of early-stage investments, the financial score by which you will measure your success. It is not as controllable as the decision to write the first check, but with advanced thinking and strategic action by both you and the entrepreneur, the likelihood of success can be increased dramatically” (p. 287)…….. When I started my business I developed a business plan but I chose NOT to consider an exit strategy. At the time I thought that my exit would be with retirement and that I’d pass the business on to my children. However after ten years in this business and watching my children grow, continuing education or moving away, I realize that it is best that I sell off the business sooner than later. I have started that process with my recent acquisition and am in the process of selling, but then I meet with a business broker next week to further discussions to sell of the core of the business. Thank you for sharing the additional link from Crawford. Good stuff.

  6. Kay,

    I just finished reading your blog post and I really liked how you started off the post with how and why harvesting must take place….do REPAY the investors/entrepreneurs. I was surprised that there were only two negative ways to harvest a business that we learned this week.

    I also liked that you brought up starting up with an exit strategy. This is a step many investors, entrepreneurs fail to do and we all know what happens to those that fail to plan.
    V/r,
    Merida

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