In 2007, Professor Rob Wiltbank reported in Returns to Angel Investors in Groups that angel investors made follow-on investment in about 30% of their invested companies. It was surprising for me to learn that follow-on investments correlated with lower returns, that is, angels that made follow-on angel investments saw returns of 1.4X their investment, while those that did not make follow-on investments enjoyed 3.6X returns. The time to exit for both groups was similar.
Frankly, the conclusion that angels who make follow-on investments can expect lower returns is distressing to me. At a time when venture capital, on average, has moved to later stage investing, angels need to plan on making multiple investments to help startups survive to positive cash flow and eventually to exit. Fifteen years ago, angels typically invested $250K to $500K in startup companies while the average venture capital investment was $2-3 million. As we saw in Average Round Size in Angel Deals, the average angel investment is now about a bit over $300K but venture capital is now investing $7-8 million per deal. While it may not have been true in the past, angels now need to provide startups with enough runway to get to positive cash flow, to venture financings or to an early exit through several rounds of angel capital.
To read the full, original article click on this link: Follow-on Funding: A Dilemma for Angel Investors | Gust Blog
