New research shows angel investors make an average of 14.7% return when investing into start-ups
Envestors, the marketplace for early-stage investing, has today announced the results of its research into the Real Returns of Angel Investing.
An analysis of the portfolios of nearly 50 experienced angel investors found a weighted average Internal Rate of Return (IRR) of 14.7%.
Of the £75.4m invested by study participants, the value of exited and existing portfolio companies totalled £208.5m, resulting in a gain of £133.1m.
Figures exclude the tax benefits offered by the Seed and Enterprise Investment Schemes, which when tallied would increase the results.
The portfolio across participants included over £75m in investments in over 1,660 early-stage businesses.
- 89% of respondents showed a net gain
- 11% of respondents showed a net loss
- 173 of the businesses had exited while 368 had failed and 1,119 were still in play
Participants were required to have invested a minimum of £250k in at least five companies over a ten-year period. Results, therefore, reflect the average returns of private investors who have built a portfolio of early-stage investments over time.
Oliver Woolley, CEO of Envestors and an active angel himself said: “The results are really enlightening. Angel investing is known for being high risk, but what the study is clearly showing is that it can be very lucrative.
“We’ve been helping to match companies and investors for nearly 15 years, and we’ve had our share of winners and losers, Chargemaster’s recent sale to BP for £129m being a standout success. What’s clear is that if you approach investing carefully, work with a regulated network and build a diverse portfolio, it can pay off.”
Investing into early-stage businesses does carry risk and some study participants (11%) made a negative return.
When asked for advice, study participants offered the following:
- ‘Spread your risk, recognise that many will fail (including those you rated as relatively low risk), and crucially, remember the time for the successful ones to provide an exit opportunity is many times longer than predicted by the company at the time you first invest.’
- ‘Meet the CEO. If you’re not seeing the CEO, there’s a big problem.’
- On finding good deals, the unanimous advice was to work with an established network
- Lastly, they stressed the importance of strong leadership teams, ‘The entrepreneur(s), are they leaders, driven, committed, experienced Do they have the qualities necessary to build a large and successful business?’