Do most angel investors make money?

By David S. Rose / August 16th, 2012

The reality is that results in angel investing tend to bifurcate:

“Professional” angel investors, who are investing calmly, steadily, relatively-rationally, over a long period of time and with a strong knowledge of both investment math and early stage realities, tend to not only make money, but do quite well: the average return for a comprehensive, well-managed angel portfolio is between 25% and 30% IRR.

On the other hand, the large majority of self-described “angel investors”, both domestically in the US and internationally, would not fall into this category. That is because they are either new to the field, not taking it seriously as a financial business, not in it for the long haul, or not willing to continue investing until they have a fully diversified investment portfolio. For those people, returns tend to be flat to mostly negative.

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *

Batman

David – this doesn’t surprise me. When you look through what most investors are expecting as a return – 10x to 30x their investment in a few years – it looks more like someone buying lotto tickets. I don’t seem to have run into the ones that are happy with a paltry 25 to 30%!

David S. Rose

Batman, Ahhh, you’re missing the point! Professional investors get the 25%—30% returns across their portfolios precisely BECAUSE they are targeting 30x for each individual investment! If you apply the “secret math of angel investors” and take into account the percentage of successes and failures as well as the average time to exit and the time value of money, it turns out that each opportunity should have the possibility of a 30x in six years, in order to result in a 25% IRR.

weo111

Actually David, that’s a flawed model. It might work for venture capitalists who can put large amounts of money to work and accept that only 1 or 2 deals out of 10 will return 100X. But for smart angel investors, looking at things that may not ever become Google or Facebook, but might return 3-5X in a short period of time is much more sound. And can get you steady returns of better than 20%.