Angel Investing Returns: Research and Reality

Note: This article is the eighth in an ongoing series for angels new to investing. To learn more about building an angel portfolio, download this free eBook today Angel 101: A Primer for Angel Investors or purchase our books at

Angel Investing ROI
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Investing in startup companies comes with a lot of risks. Great investors know you have to balance high risk with high reward. After building a diverse portfolio and allocating an appropriate amount of capital, what kinds of returns can an angel investor expect?

This is a question that academic research groups are digging into.  A number of reports were published outlining expected returns from a diverse angel portfolio, but more research is needed. The Angel Capital Association is working with a number of research groups around the US to better understand the risk/return profile of angel investing. Christopher, as Chairman of the ACA, you have a front row seat on some of this research. So let’s dig in and find out what you know.


Q: Tell us a bit about the research studies that were completed a few years ago. What organizations did the research? How did they go about collecting and analyzing the data?

As a general matter this is an area that is under-studied, and difficult to study, because it is incredibly dispersed, informal and unregulated.  That said, there have been a couple attempts at both sizing the angel market and analyzing returns.  

On market sizing, Jeffrey Sohl at the Center for Venture Research is probably the most authoritative and transparent, although other studies have come up with fairly similar corroborating results using different methods.  CVR’s excellent series of studies sizes the angel market at an average of about $22.3B per year over the period 2001-2014, with the size averaging about $23B in the 2001-2007 period, dropping to an average of about $19B per year in the recession years of 2008-2010 and an average of about $24B since then.

In terms of average returns, the largest and most widely-cited study was done in 2007 by Robert Wiltbank and Warren Boeker with funds from the Ewing Marion Kauffman Foundation.  That study looked at the returns of 3,097 investments by 538 angels and included data on 1,137 exits and closures.  The findings of that study were that the average return was 2.6 times the investment in 3.5 years, or an IRR of 27%.  According to an excellent survey of other returns studies done by a group called Right Side Capital Management, the returns findings of most other studies tend to cluster around this IRR, save for one low outlier at 18% and one high outlier at 37%.  

Q: In addition to returns data, what are some of the other key findings from these reports?

Aside from returns, the Wiltbank/Boeker study had three very key findings: (1) angels who put in more due diligence time (20-40 total person hours per deal) had better returns (2) angels who had expertise or access to expertise in their investing areas had better returns and (3) angels who interacted with their portfolio companies at least a couple times a month with mentoring, coaching, providing leads and monitoring performance had better returns.

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Q: What are some of your personal experiences for the returns you’ve had in the first 7 years that you have been an active angel investor?

I have invested in 51 companies directly, I am a general partner directing investments in two funds (one a small VC fund, the other an angel fund) and I am a limited partner (i.e. a passive investor) in four low fee/low carry angel funds. The four funds I am a limited partner in are diversification plays (two vertical-specific and two geographical). Five of the six funds will each yield me some ownership in about 35-45 companies (so approximately 200 companies across those five funds) and the little angel fund has done about a dozen. None of the funds has experienced any big positive exits so far - just a couple small exits and a dividend or two, so I am ignoring the returns in the funds for the moment and focusing on my direct investments since they are more representative of typical angel returns. 

As for those direct investments, it is still early - the oldest couple investments are about ten years old but the newest are less than a year old and a good percentage of the money has been at work for less than five years. With the direct investments, I have experienced twenty exits so far. Eight were positive returns, with six of them paying out in the 2-5X range, one at 7X and one at 21X. The other twelve were the negative outcomes, each returning less than 100 cents on the dollar.   Aggregated, those twenty exits have generated a 175% return on the money invested in the exited companies or a 1.75X total return so far. The blended IRR works out to about 18%. 

Overall, not bad at all so far, considering that you tend to get your failures faster than your big wins, and you tend to get smarter in your investing over time. In my case, I feel pretty good about nearing 2X so far, and when I look at the money that remains at work in various interesting companies (both direct, and via the various funds), I have what I believe is a very reasonable basis for excitement about excellent overall potential returns.  And of course, I continue to add interesting new companies every year!

Q: What can you tell us about some of the research that the ACA is collaborating on with other organizations?

The Angel Capital Association does a variety of education and research activities. The most notable is a massive data collection effort called the Angel Funders Report which collects investment activity data from the ACA’s 14,000+ member angels. There is also an initiative underway to update the performance data in the 2007 Wiltbank/Boeker study. In addition, the ACA is constantly surveying its members on a variety of topics and has recently formed a small fund in collaboration with Rev1 Ventures in Columbus Ohio to honor legendary angel John Huston and to support research on American angels. That study will look at qualitative questions about angels: who they are, what they invest in, and what they care about.

Q: Some angel investors tell me they aren’t all that interested in financial returns. They claim they do angel investing for the psychic returns. Can you explain what they mean by “Psychic Returns”?

The money involved in angel investing is serious, so I have yet to meet a single angel who literally did not care at all about the financial returns, but that said, most angels do cite the rewarding nature of the work as part of the reason they spend so much time and effort in angel investing. Many angels are people who were successful in life through some combination of hard work, skill, and luck, and many of these people want to give back. Few things in life are more rewarding than using your knowledge and experience to help other people succeed. The fun and satisfaction associated with getting involved in a fascinating project and seeing it through to a successful conclusion is what people are referring to when they talk about the psychic returns of angel investing. If that project also has a positive social impact by making the world a better, healthier or more convenient place, or delivers a financial return for the founders and the investors, that turbo-charges the psychic returns.

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