Even before you make an investment, the issue of an exit needs to be analyzed.
A common view is that the startup will get friends and family, followed by Angels, followed by VCs, followed by an IPO. The mathematics do not support this. There are approximately 1 million companies funded by friends and family, 100 thousand companies funded by Angels, a few thousand funded by VCs, and maybe a hundred if so go IPO. The overwhelming majority of Angel funded companies get bought out by a strategic buyer.
Let’s focus on the strategic buyer option. The founder must have a list of strategic buyers. In most cases, these will be strategic competitors. What I like to see is the founder who has initiated some dialogue with strategic buyers and obtained some positive feedback. Founders who are paranoid and want to be in stealth mode forever are not fundable. By nurturing a group of strategic buyers, you also get the possibility of getting some marketing help or introductions. And hopefully, a buyout offer too good to refuse appears.
For companies that are groomed for VC funding, relationships need to established very early (maybe before Angel funding). Additional issues exist in that you must catch the fund when they are making investments usually in the first 3 years of the fund. Also, the burn rate is such that if VC funding is not obtained than the company will go under. VCs tend to place great value on the founders (as they should) and in many cases delight in cramming down the Angels. In my view, a company that is groomed for VC funding has a higher risk than a company that is groomed for a strategic buyout.