A study of angel investors uncovered continued solid investment returns, with a small number of big exits bringing home the bacon.
But the report also found that seven of every 10 exits failed, highlighting the field’s sharp investing risk.
The research report by the Angel Resource Institute at Willamette University found a cash-on-cash returns multiple for angel investors of 2.5x and an IRR of 22 percent.
The performance parallels that of a similar 2007 study, which found an investment multiple of 2.6x and an IRR of 27 percent.
“Like venture capital, it’s fundamentally still a home-runs game,” said Robert Wiltbank, a Willamette professor and co-author of the work. “When you win, your returns are enough to cover the loss.”
The survey should broadly reflect the returns for members of angel groups, Wiltbank said.
The study looked at investment returns for 20 angel groups in North America and tracked 250 companies.
Ninety-one percent of the exits it examined took place between 2010 and 2016 and almost two-thirds between 2013 and 2016, a generally favorable time for venture capital performance.
What it found is that 10 percent of exits brought 85 percent of the payback and 70 percent of them failed to return capital.
The average holding period for companies was 4.5 years, including companies shut down. Bigger wins typically took nine to 10 years.
“It’s definitely risky investing,” Wiltbank said.
Action Item: Tracking Angel Investors 2016 study: http://bit.ly/1VSv9nY