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The Liquidity Challenge in the Startup Funding World

I remember the last ACA (Angel Capital Association) meeting I attended. The theme was exits and how to achieve them. It seemed like every angel or angel group had a list of the deals they’ve been in for more than ten years. The sessions focused on helping the entrepreneur achieve an exit. More than a few of the sessions talked about how to deal with entrepreneurs who no longer wanted an exit.

It appears that if the entrepreneur can gain an above market salary that in many cases they’ll make more if they stay with the business for ten years or more than if they sell the business.

One of the key metrics to monitor is salaries of the C-level team of your startup and compare it against market rate. It should be about 70% to 80% of the market rate. If it’s above 100% then you’ve got a problem. First, those are funds that should be growing the business. Second, the startup has most likely given up on a high dollar return on selling the business and is now taking their exit through the payroll plan.

Having talked to many an entrepreneur about achieving an exit, I find that about half want an exit but can’t get to one with a large influx of new capital or they don’t want one at all. Either way, it’s a problem.

There’s a saying in the financial world, “Getting into the deal is easy. It’s the getting out part that is hard.”

Hall T. Martin

Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies

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