How well do angel investments perform?

goodcounsel represents a wide range of startups, many of which have raised capital from angel investors. How do these investments perform? It is difficult for us to generalize from our limited view of the landscape. We don’t have a large enough sample size (or the expertise, to be frank) to make broad judgments.

Fortunately, there are organizations who compile data and study issues like this. One of them, an organization called the Angel Resource Institute, recently issued a report called “Tracking Angel Returns.” You can read it yourself, here, but the upshot, based on a combined data set of 245 completed investments:

  • The overall cash on cash multiple is 2.5X, with an average holding period of 4.5 years. This equates to an Internal Rate of Return (IRR) of 22%, which is obviously very good.
  • Failure rates, not surprisingly, are high: 70%.
  • Of the non-failures, a mere 10% generated 85% of all cash, which again, is not completely surprising. This explains why smart early-stage investors typically pursue a portfolio strategy.

This suggests that a broad portfolio of angel investments offers attractive performance; by the same token, making a single, undiversified investment could be risky risky (true of a single investment in any asset class).

What factors go into making the successful startup? We’ll explore that in a separate post.

Categorised as: Capital Structure