Connect with us

Investors Golden Rules

Investor Rule No.02 – Liquidity

The other important rule you would need to consider is what we call the “Liquidity Rule”. Unlike any other common investments such as bonds, stock, commodities, savings, and some other such as collectibles and even real estate holding which could be highly liquid at the time of a need, most venture investments are not liquid.



Venture Investments will require the investor to hold their position between 5-8 years.  Although there could be cases in which your Investments will become liquid in the event of a sudden exit, partial sale or a wholesale of the company, yet you should consider this the exception, not the rule. That is why, if you remember, we do not recommend allocating more than max of 20% of your entire investment portfolio to high risk investments.

We know that given that Angel investors are typically the first money in the deal, they tend to hold their equity position the longest, not like later stage VCs. You should consider, depending on the type of investments, we are talking about a timeframe of 5-8 years at least. Do not be fooled by the hype and the press that keeps reporting those big exits, they are by sheer numbers, the exceptions.  If we just looking at some recent transaction such as Slack founded in 2013 recently acquired by Salesforce for $23B after 8 years, Duo Security from Ann Arbor founded in 2009 acquired by Cisco in 2019 for $2.5B after 10 years and LLamasoft founded 1998, just got acquired for estimated $1.6B after 22 years. So you can see, although the angel investors made a killing on their investment, at least one of them I know for a fact had 125X return on their investment, yet they had to hold their position for 8 years. Do not get me wrong, I will take it any day of the week and twice on Sunday, my point is that it may take that long and you need to be prepared for it.

Making Venture Investments will require the investors to “park” their capital for a lengthy period of time. So the question you need to ask yourself is – will I be able to be without that capital for that length of time?

It is not to say that at times you catch a quick exit, and here again, it is the exception not the rule. Conservatively, we will say that  90% of the total capital in your investment portfolio will be tied up for a long period of time.

Birmingham Angels
Content Provider: Birmingham Angels
Birmingham Angels’ purpose is to become a premier Investment group that is committed to taking Angel investing to a new level. Building a network of active, progressive, and innovative investors that are committed to turning the US into a powerhouse startup ecosystem.
Continue Reading