Returns to angel investors in groups

angelcapitalassociation.org

Entrepreneurs and investors regularly wonder what the returns are in angel investing.

The completion of this research project provides robust data on this subject that has never before been available. Our findings in this study are based on the largest data set of accredited angel investors collected to date, with information on exits from 539 angels. These investors have experienced 1,137 “exits” (acquisitions or Initial Public Offerings that provided positive returns, or firm closures that led to negative returns) from their venture investments during the last two decades, with most exits occurring since 2004.

Analysis of the data revealed important details of the investment outcomes for angel investors connected to angel organizations:

  • The average return of angel investments in this study is 2.6 times the investment in 3.5 years— approximately 27 percent Internal Rate of Return (IRR). This average return compares favorably with the IRRs of other types of private equity investment.
  • The distribution of returns for this type of investment is quite varied. Like venture capital, “average return” may not describe the performance of most angels in the study. The analysis identified a wide range of performance for the investment exits in the study.

We also evaluated three factors that appear to impact these angel investors’ outcomes:

  1. Due diligence time: More hours of due diligence positively relates to greater returns.
  2. Experience: An angel investor’s expertise in the industry of the venture in which they invest also is related to greater returns.
  3. Participation: Angel investors that interacted with their portfolio companies at least a couple of times per month by mentoring, coaching, providing leads, and/or monitoring performance experienced greater returns.

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