Investment Returns

Early Stage Companies Can Produce Great Returns

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The most recent comprehensive study on angel investing, Siding with the Angels (2009), validates much of our thinking and experiences regarding early stage investing. To our knowledge, this report is the most comprehensive study of returns from angel investing ever published: it analysed 1,080 angel investments made between 1998 and 2008, and it showed an overall internal rate of return (IRR) of 22%. According to the research, early stage companies provided a greater average annualised total return over the period 2002 to 2007 compared to gilts, property, and stocks and shares. Please note that past performance should not be relied on as an indicator of future returns.

With Risk Comes Reward

The report also found that early stage investment returns are skewed, meaning that a few big winners produce the vast majority of the returns, while the majority of investments lose money. Most early stage companies fail, and in the sample studied by this report, 80% of cash returned came from 9% of exits. Seed-stage businesses may have an even more skewed set of returns than the whole set of angel investments in the report.

Create a Diverse Portfolio

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Diversification is key to early stage investing. For any given amount of money you wish to invest in early stage companies as a whole, rather than invest the entire amount into one or a handful of early stage companies, you are likely to achieve stronger returns if you invest smaller amounts across a significantly larger number of early stage companies. Data from Siding with the Angels suggests that having around 100 investments in a portfolio can produce about a 2X overall return. 

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