Global Returns on Angel Investments: An In-Depth Analysis

In the realm of startup funding, angel investments have become increasingly popular. This article delves into the average returns from angel investments globally, based on recent data and insights from various studies. While the existing data may be limited in scope, it offers valuable insights that can be further explored through academic and scholarly research.

General Conclusions

According to the data analyzed from a survey of 158 UK-based angel investors, the average returns on angel investments are quite significant. Among the 1080 angel investments, 56 did not return the capital invested, making a 7 times return. Among the exits, 15 returned capital despite being at a loss, 41 completely lost the invested capital, and only 22 returned more than the investment.

Surprisingly, the positive exits usually outperform the losses. Almost half of the positive exits resulted in larger multiples than the losses, leading to an overall return of 2.2 times the invested capital. The holding period for investments varies, with an average of 3 years until failure and 6 years until a positive exit.

The Data: A Closer Look

The study, conducted in late 2008, surveyed 158 UK-based angel investors. These investors had collectively invested ￡134 million into 1080 startups and exited 406 of these investments. An 'exit' in this context refers to any termination of an investment, including a venture's business going out of business, being acquired, or going public. Notably, only those who are part of angel clubs or groups were included in the study. This raises questions about the generalizability of the results and whether they can be applied globally.

Limitations and Research Directions

While the data provides valuable insights, it also has several limitations. Primarily, the study is not scholarly or peer-reviewed, and the sample is limited to UK-based investors. This means that comparisons with the US, Israel, or the Rest of the World (RoW) are difficult to make. The survey includes a bias towards UK-based exits, with 75% of the investors not willing to invest outside the UK.

The rate of return and holding period data are also subject to interpretation. The report mentions a median holding period of 3.6 years, while the article refers to an average period of 6 years. These discrepancies require clarification and can affect the reliability of the data when building predictive models. Further research is needed to reconcile these differences and to understand the factors that influence angel investment returns.

Investment Stage and Model Building

Over half of the investments in this study were in pre-revenue stage companies. This highlights the importance of focusing on early-stage startups when making angel investments. However, this also suggests that early-stage companies are riskier and may require a different approach in modeling and assessing returns.

As angel investors and venture capitalists consider building predictive models for returns, it is crucial to address these limitations and gather more comprehensive data. Collaborative research involving more diverse investor groups and larger sample sizes would significantly enhance the accuracy of models and provide a more holistic view of angel investment returns.

By understanding the nuances and limitations of current data, the investment community can make more informed decisions and develop more robust strategies for success in the startup ecosystem.