Angels with Green Halos

During last week’s Future Forward event, banker Giles McNamee called angel investors the most underappreciated — and under-reported — cogs in the startup community’s engine. No disagreement here, but what angels lose in accolades, they apparently make back in cold hard cash.

Individual investors affiliated with organized angel groups generated an average IRR of 27%, according to a new study by the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation. The study analyzed data from 86 angel groups throughout the U.S., which involved 538 individuals who have experienced more than 1,130 exits. This group experienced exits that generated 2.6X invested capital in a 3.5 year timespan, with 7% of exits producing more than a 10x return. On the downside, 52% of all angel investments return less capital than initially invested.

The study also determined that returns improve if an angel has experience in the portfolio company’s industry, and also if the angel interacts at least a few times with his or her portfolio company. Added hours spent on due diligence is also a helper.

Download the full report here: angel_groups_111207.pdf