The Kaufman Foundation conducted research on the performance of angel investors and concluded that if an angel has a portfolio of under 20 companies the angel’s performance will be lack-luster and quite dangerous in fact. Angels Make 2.5X ROR Research. The report found that angels need 12 current investments to reach returns of 2.5x. To join the ranks of top performers of 10x to 20x returns angels need to make 50 investments or more. The Kaufman report also cautioned that each investment opportunity must be carefully vetted with qualified due diligence (DD) conducted by subject matter experts.
I could not agree more with this empirical data.
If an angel invested $500k into two companies at $250k each, or any amount for that matter, there is an 80%+ chance that she will not see one dollar back ever. Each angel investment has about a 20% chance of viability. Sometimes I meet an angel who proudly tells me that he has 8 or 9 living investments and a few dead ones and I ask them how many years it took to get into these 9 deals. They often say 4 or 5 years. That’s not achieving what I think is the minimal portfolio theory effect which is a portfolio of 15 investments. Angel investing is not investing in publicly trade companies. This is a totally different sport. The facts tells us that only 20% of these companies make it and the variance of the performance of the survivors is huge.
Angel investors should put money down on different colored squares before spinning the roulette wheel. Silicon Valley is back in case you did not notice. Tumblr is the latest startup to be sold for over $1 billion. The way to get into a Tumblr, a Twitter, a Nicera or a VMware is to find a way to invest in 10 to 20 startups per year.
What is your strategy to get into 2 to 3 deals per month? What is your strategy to make sure each investment is well vetted, highly filtered from thousands of startups, DD conducted by subject matter experts, co-investing with the major league athletes in this game and make sure that each of your investments is bubble wrapped with the best advisors and mentors to “make it happen” for these startups and make sure they get fast tracked to VCs and introduced to the big balance sheet buyers at the right time? What is your strategy to get into 20 deals in 12 months when you only have $100k, $50k or only $25k to put to work?
If you are an angel and have fewer than 15 live investments you are doing this as a hobby and not to make money. Wake up, dude! What are you really doing?
Georgetown Angles invests in 5 startups per quarter. We select these 5 companies from our deal flow funnel of thousands of startups that approach us for funding. We talk to and meet with hundreds of companies. We leverage the deal flow and due diligence expertise of our entire network of angels and we have the discipline to push only 5 investments per quarter through our funnel of thousands. We enable our members to invest in any of our 5 selected companies on a deal-by-deal basis investing a minimum of $25k per company if they choose to only invest in one company. If they chose to invest in only 2 of the 5 companies the minimum investment per angel is $30k which we divide evenly between the 2 companies the angel selects to invest in. If an angel wishes to invest in all 5 companies for the quarter we accept a minimum investment per angel of $50k and spread that across the 5 companies. Most startups will not accept less than a minimum of $50k or $25k directly per investors, but Georgetown Angels aggregates all of its angels into one fund and invests as one shareholder. So when we invest in a startup it is typically a cash investment of $150k to $1m into the company and Georgetown Angels is the only new shareholder in the cap table.
You don’t need to have a degree from Georgetown University to invest with us. Non-Georgetown investors are welcome to invest with us. A friend of mine in Silicon Valley recently said to me, “Wall Street is rigged. Your own banker might be screwing you. Silicon Valley is also rigged, but it’s our casino. We have access to the best information, entrepreneurs, investors and buyers.”