the 1st rule in startup investing: how investors lower risk and boost returns in early stage...

The 1st Rule in Startup Investing:How investors lower risk & boost returns in early stage companies

Other methods professional investors use to de-risk investing in early stage companies

How to build a portfolio of startups

What kind of returns can you expect with -- and without -- diversification?

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Zack Miller, OurCrowdHead of Investor Community

Meet OurCrowd’s Team

David Stark, OurCrowd Investment Associate

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Investors now have access to startups

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The angels cometh

Capital raised in Israel

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But investing in startups is

risky business...

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52% of startup investments returns <1x

Source: Kauffman Foundation

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So, where does risk come from?

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Where does risk come from? • systemic risk: rising tides float/sink

all boats

• industry risk: just bad bets (like nanotech, solar)

• geographic risk: emerging markets are hot...until they’re not.

• execution risk: company just doesn’t pull it off

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that’s why returns compensate investors for risk

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Angel investing returns

Startup portfolios return about 2.5x

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But, you cande-risk startup investing

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optimizing investing for given risk

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Harry Markowitz

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• Efficient frontier• CAPM• Modern Portfolio

Theory

Diversification in finance literature

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Building startup portfolios

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Where to find opportunities: See our last webinar, Finding the Next $billion opportunity (Source)

Building a startup portfolio

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Parameters:

• Number of investments: At least 6

• Open questions: does an investor need to diversify across industries, maturity/experience levels?

• Equal weight vs Overweight (RSP vs SPY)

Building a startup portfolio

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52% of startup investments returns <1x

Remember...

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Interestingly, less than 40% of startup portfolios

returned <1x

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Other ways to de-risk

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3 things appear to boost returns

1. Time spent in due diligence

1. >20 hours, median returns 5.9x

2. Industry experience

1. Multiples are 2x when investor has industry experience

3. Ongoing participation

1. Investors interacting with portfolio companies a couple times per month, median returns of 3.7x over 4 years

Source: Kauffman Foundation

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structuring an investment

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rights and protections(anti-dilution rights, preemptive, etc.)

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investing tied to performance (milestones,

tranches)

Milestone 1

Milestone 2$ $

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co-investors

Source: Harvard, Economist

Some dataCo-workers: 60% more likely to invest, but returns -18%

Same ethnicity: 20% more likely to invest, but -25% to IPO investment

Based on ability: founder with a degree from top university adds 9% to likelihood of IPO

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Summary:angel investors make

money.

Source: Growthink

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Equity crowdfunding makes building a

startup portfolio easier than ever

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Value of crowdfunding

• access to deals• previously high minimums

made portfolio building too expens i ve , g i v i n g ange l investing a bad rap

• new low minimums turns every angel investor into a portfolio manager

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OurCrowd’s value

propositionCombining DIY of angel

investing with professionalism of venture capital

One-stop portfolio builder

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Intro to Portfolio RESERVE

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Portfolio RESERVE

• Automated portfolio building

• 1x funding

• Guaranteed allocation

• Opt-out feature

• Learn more (click here)

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Any questions?

Zack Miller, Head of Investor Communityemail: zack@ourcrowd.comVisit OurCrowd.com

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