angel investor performance & strategy data from the u.s. and u.k. robert e wiltbank, ph.d....
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Angel Investor Performance & Strategy
Data from the U.S. and U.K.
Robert E Wiltbank, Ph.D. Associate Professor of
Strategy Willamette University 503 715 7894 [email protected]
• Sample Frame: ‘publicly seeking’ angel groups- Data from 117 different angel groups- 700 angel investors included in the data thus far, experienced
1,542 exits
- Individual response rate: 15%
• Sample Bias?
• U.S. Sample: No Significant Self Selection Biases– Outcomes are uncorrelated to the response rate of a
group.• 2.6X for 7 high response rate groups (2/3 response) vs. 2.4
for low rate groups• Median multiple was 1.2 for Hi rate groups, 1.4 for low
rate groups
Business Angel Data
• Make just more than 1 investment per year
• Greater variation in UK work experience than US angels– They had founded a median of 2.5 companies (27% founded 0)– Most everyone (95%) had worked for at least a few years in a large
firm– 24% had operated as public servants for at least a year or two.
• Median of 10% of their personal wealth in both US & UK
• About a 2/3 vs. 1/3 split, active vs. passive investors
• In UK 2007/2008: Reviewed 20 opportunities made 3 investments
• 24% of the investments likely not made without tax incentives
Group Affiliated Angel Investors
0
10
20
30
40
50
60
< 1X 1X to 5X 5X to 10X 10X to 30X > 30X
Exit Multiples
Per
cent
of T
otal
Exi
tsDistribution of Returns by Venture Investment
Green Bars: U.K. % of exits in that Category (prelim)Blue bars: U.S. % of exits in that Category
UK: Overall Multiple: 2.2XHolding Period: 3.6 years
US: Overall Multiple: 2.6XHolding Period: 3.5 years
Approx 22% IRR
Approx 27% IRR
Hold: 3.0 yrs.
Hold: 3.3 yrs.
Hold: 4.6 yrs. Hold: 4.9 yrs. Hold: 6.0+ yrs.
• More entrepreneurial expertise (number of ventures founded) is significantly related to better outcomes. – In the U.S. 85% of angel investors are cashed out
entrepreneurs– Somewhat lower in the U.K., a larger variation in
the experience of angels
• U.K. Angels invest in later stage opportunities than U.S. Angels– 15% vs. 32% seed stage, 36% vs. 18% early growth
Entrepreneurial Expertise
• Interaction: hi interaction had significantly less failure – Low interaction (quarterly/annually/rarely) failed 61% of
the time– Hi interaction (daily/monthly/weekly) failed 44% of the time
• UK: Board Role: related to better returns (related to entre expertise)
– Significantly better returns in regression analyses, the largest effect size
• Passive vs. Active – Passive was significantly related to smaller investments and
worse returns
Participation post investment
-
10
20
30
40
50
60
< 1X 1X to 5X 5X to 10X 10X to 30X > 30X
Exit Multiples
Per
cent
of E
xits
Low Participation High Participation
The Impact of Participation in the U.S.
High = 1 or 2 times per month
Low = 1 or 2 times per year
High 3.7X (4.0 years)Low 1.3X (3.6 years)
The Impact of Time in Due Diligence
Overall Multiple for High Diligence 5.9X (4.1years)Overall Multiple for Low Diligence 1.1X (3.4 years)
Median: 20 hours
26% involved over 40 hours
-
10
20
30
40
50
60
70
< 1X 1X to 5X 5X to 10X 10X to 30X > 30X
Exit Multiples
Per
cent
of E
xits
Low Diligence High Diligence
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
< 1X 1X to 5X 5X to 10X 10X to 30X > 30X
Exit Multiples
Perc
ent o
f Exi
ts
Follow On Yes Follow On No
Follow-On Investment from Same Angel Investor
No 3.6X (3.3 years)
Yes 1.4X (3.9 years)
30% of deals had follow on investments.
• There is practical value in researching angel returns
The strategic choices involved in angel investing influence the success and failure of angel investors. Research on the process and outcomes can help improve your next investment.
• The full reports are available online through the Kauffman Foundation and NESTA
Angel Performance Project
Robert [email protected]
– Deal Flow is critical, and can be very spotty Especially true for individuals, still true for groups in
smaller metro areas
– Compensation and Capability issues in groups. Active vs. inactive members performing due diligence and
oversight.
– Capital Waves Strong early activity to max capacity often happens before
successful exits
– Negotiating leverage in growing deals Angel groups are doing some later stage round, but struggle
to control terms
– Dispersion of returns: sidecar funds and group cohesion.Spread out the “winnings”? Interfere in the action?
Challenges in Angel Investing
• Non Predictive Control in Angel Investing: – Select ventures that appear most capable of influencing critical market
elements.Create and Influence localized markets, rather than compete in
large “ideal” ones.
– Emphasize the current means and capabilities of the venture rather than on plans for acquiring the “best” means to reach their original goals.
Adjusting goals is less expensive than acquiring different means.Commitment is more important than Best.
– Encourage the venture to make smaller investments that get to cash flow positive rather than investing in the resources suggested by market research to “hit plan.”
Overhead trails growth
– Avoid prediction as the basis for investment decisions.Emphasize affordable loss rather than maximizing expected
values.
Control is related to a reduction in failures, homeruns appear random.
At the Core of Entrepreneurial Expertise