Thursday, November 15, 2007

angels enjoy better returns than VCs?

Angel Returns Outpace VCs'
At a time when many venture capitalists are retreating from early-round deals, a new study has found that angels, the earliest investors, are wearing solid-gold halos.
The study, sponsored by the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation, found that members of organized angel investing groups had an average 27 percent internal rate of return, or the annualized compounded rate of return. That compares with VC returns for all investing stages, which historically average in the mid-teens, said Robert Wiltbank of Willamette University,  one of the study's authors.
Overall, the angel groups investors posted a return of 2.6 times their original investment after 3.5 years. While 7 percent of the exits were home runs with returns of more than 10 times the investment, more than 52 percent of exits came at a loss. More than 60 percent of the angel investors at least broke even on their overall portfolio.
The study, conducted last spring and summer by Mr. Wiltbank, an assistant professor of strategic management, and Warren Boeker, professor of management at the University of Washington, asked the 539 participating angel investors to detail their investments as far back as they could. Sixty-two percent of the exits occurred after 2004, while only 8 percent happened before 2000.
Though other studies focus on angel investment activity, Professor Wiltbank said this is the largest to look at investment returns.
Professor Wiltbank said the study found that angels who took a more active roll with their portfolio companies fared better.
"You can see strong effects when investors do a little extra due diligence; and if they keep in touch with the ventures a couple times a month, the numbers are stronger," he said.

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