Reading up on it, I know VCs are not keen on investing in service businesses. But, angel investors are more likely to invest in a service business startup. So I'm curious, what type of exit strategy do angel investors prefer? In an ideal world, I would like to keep the business (not sell it) and keep it as a private corporation, no public shareholders to answer to. That's the goal, but might change . Thanks.

I've run 2 service businesses and as the previous answer calls out, investors usually invest for returns. Whether it's product or services, it's about returns.

Investors in service businesses are usually looking for the singles and doubles, whereas the product investors are often looking for homeruns with many strikeouts.

Service businesses more often than not leverage their operating cash flow to expand the business and reinvest their profits. IPOs are rare. Acquisitions are occasional. More often than not it's bankruptcy or building a sustainable business. When it's a sustainable business there should be something worked out at the board level on how to return the winnings/profits to the investor.

Depending on the difficulty of the service business, the operating cash might be locked in the business for several years while it clears the initial hurdles of building for scale.

Hope this was helpful. Feel free to reach me here for more information.


Answered 4 years ago

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