Raw Data to Actionable Insights: November 2022

As a part of of ACA’s Data Insights Initiative, we share useful learnings from analyzing data on angel investing and portfolio returns.

Patience Is Required in Angel Investing

It is important to have realistic expectations on returns and timing when one begins the journey known as Angel Investing. One of those expectations is timing – shutdowns tend to come early and exits tend to come later. This was covered in an earlier ACA Data Insights.

A deeper look at the distribution of TCA’s 95 exits out of 223 outcomes through 2021 shows the importance of being patient as an angel investor. If you invested an equal amount in every one of the deals, including 128 shutdowns, you would have received 6.7 times your investment back and an IRR of 26.2%. However, it would not be until year 5 that you would have realized 100% of your overall investment (including the shutdowns). In year 5 and beyond, exits tend to be at higher multiples and there are fewer shutdowns each year as well. It is the really big multiples in these later years that drive overall returns, since companies take a long time to grow revenues and profitability to command the higher valuations upon exit.

Source: Analysis of 223 Tech Coast Angels outcomes 1997-1021

In fact, TCA has active portfolio companies in every year since its founding in 1997 other than that first year.

So the “tail” is very long and most angels will be left with some unresolved investments as they “shuffle off this mortal coil,” as Shakespeare would say.

Key Takeaway:

Patience is truly a virtue in angel investing. Therefore, don’t get discouraged by early shutdowns and only modest sized exits in the first 5-7 years, and consequently decide to cease further investments. With patience, you should start to see better returns in the later years if you maintain your pace of new investment.

Author:

The Angel Capital Association is your authority on angel investment information! The Angel Funders Report, is the only official report from ACA for angel investment data in North America.

We hope you are enjoying these Monthly Data Insights. If you have an insight (chart with narrative) that you’d like to share in a future edition, please send us your submission to insight@angelcapitalassociation.org. Our goal is accelerate learning from each other.