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