The Angel Capital Associated recently released a survey on angel investor returns. They contacted 276 angel groups of which 86 responded to the survey. In short, the average return to an angel investor in the survey was 2.6x the investment in about 3.5 years yielding an IRR of 27%. These returns align well with other forms of private equity investing.
The three factors that influenced positive outcomes included:
1. Due diligence – more hours invested yielded higher returns.
2. Experience – more experience in the angel yielded better returns.
3. Participation – those angels who interacted with the entrepreneur several times a month yielded better returns.
The exits ranged from 52% of the deals losing money, 48% making money and 7% making 10x return or greater. The average amount of time spent on due diligence was 20 hours per deal, but some spent up to 60 hours of due diligence and saw substantially higher returns. Where investors spent more than 40 hours of due diligence experienced exits of 7.1X.
Angels who spent time with the entrepreneur 3 to 4x per month experienced a return of 3.7x in four years, while those who spent time with the entrepreneur only a couple of times a year experienced a 1.3x return in 3.6 years.
This information certainly backs up my own personal experience. Where I invest in deals in which I know the industry and actively work with the entrepreneur on the business, I receive greater returns compared to those deals in which I’m a passive investor and don’t know the industry at all.
If you would like to read the full report you can download it from the Kauffman site here.