For startups it is important to appreciate the role of investors as stakeholders and partners in the creation of a successful and valuable business. And part of the appreciation should manifest itself in the realization that investors should get liquidity on their investment within a reasonable time period, usually within 5 years. Just as the management of a public company is responsible to shareholders for delivering returns, the management of a startup too is responsible to its VC investors. Unlike investors in a public company who can sell their shares at any time on the stock exchanges (usually happens when they believe that the company’s future prospects are not very bright), a VC investor cannot do so since there’s no stock exchange market for selling his shares. Thus, the shares of the VC investor are illiquid for a period of time. In return, the VC investor gets certain rights. And it is the obligation of the management to provide an “exit” to the investor after a certain minimum period of time, hopefully profitably. Entrepreneurs who understand the role played by investors try very hard to find an exit for their investors. It is important to also understand the time horizon of the investors; entrepreneurs may want to go on and on with their business but need to understand that the investor has to generate a return on their investment within a specific period of time. Great entrepreneurs appreciate the role played by their investors and work in tandem with them to provide an exit.
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