The best data set with detailed investment & exit information comes from the Angel Investor Performance Project by the Kauffman Foundation. The data was collected by surveying angels who belong to angel groups. Cleaning the data and restricting to the domain I was interested in—first round investments in early-stage high-tech companies—yielded a data set about the returns of 56 angels with exits from 112 companies. The data show the type of skewed distribution one would expect from early stage investing:

  • 75% of exits happened between 2001 and 2006. There is some reason to believe that the data may have a slight bias towards negative returns as 50% of investments happened between 1995 and 2000. Angels may have been buying high and selling low.
  • 3.2x cash-on-cash return for all investments put together (total dollars out divided by total dollars in). However, returns are extremely sensitive to big hits. A lucky angel put $600K in a software company in three rounds from 1988 to 1994. In 1996 the company went public and the person got a nice 55x return. Removing this one company from the sample drops the aggregate cash-on-cash return for all angels nearly in half to 1.8x.
  • Of the companies angels invested in, 63% were complete write-offs for the angels involved.

Author: Simeon Simeonov