

Want more angel investing in the UK? Then let’s talk about returns - pmjordan
http://eu.techcrunch.com/2010/08/05/want-more-angel-investing-in-the-uk-then-let%E2%80%99s-talk-about-returns/

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revorad
Direct link to the cited UK report Siding with the angels -
[http://www.bbaa.org.uk/library/file/BBAA_NESTA_Siding_with_t...](http://www.bbaa.org.uk/library/file/BBAA_NESTA_Siding_with_the_Angels.pdf).

Key extracts:

 _"...drawn from a survey of 158 UK-based angel investors in late 2008.

They have invested £134 million into 1,080 angel investments between them, and
have exited 406 of those investments.

Fifty-six per cent of the exits failed to return capital, while 9 per cent
generate more than ten times the capital invested.

overall return to business angel investing in the UK is 2.2 times the invested
capital.

These 9 per cent large investment exits produced nearly 80 per cent of all the
positive cash flows.

Given the holding period of just under four years, this is approximately a 22
per cent gross Internal Rate of Return (IRR)."_

~~~
Ardit20
Not quite such substantial returns then unless you are one of those 9%.

I suppose however there would be some sort of trial and error. So the guy who
got this ten times return probably had to invest in ten companies or so. Thus,
we perhaps do not quite know the real return on general.

~~~
pmjordan
_Thus, we perhaps do not quite know the real return on general._ [sic]

I think you may have misinterpreted the figures. The 22% average figure
already includes the non-performing startups. Obviously there will be
variations for each investor, depending on how good they are at picking
winners.

The top 9% of investments generate 78% p.a. returns or more ("at least 10
times"), assuming the 4 year period average applies to them, too:

10^(1/4) = 1.778 -> ~ 78%

~~~
Ardit20
What I meant is, how much would all the investments that an investor has made
add to his bottom line.

The extract by the poster above states that 80 of the positive return is
generated from only 9% of all the investments. It also states that 56% of the
investments do not return capital thus -, that would then leave us with 35% of
the investments which returned 20% of all the positive returns.

So for an average investor, he might invest in one of these companies which
return negative capital, or two, or three, or ten, and only one of the
companies which return ten times on the investment. So it could be that some
investors are making very good returns, some very bad, some just meagre
returns. Just giving an average number doesn't quite help. It is like saying
the average high school grade is C. That hardly says much about an individual
student. So too the data hardly say much about an individual investor or
specifically whether to invest in such companies is a good return for someone
with cash, unless of course you are able to invest in all the 1000 companies.

I personally think it probably is a good return to invest if you have great
business knowledge, but seeing as 56% do not return capital, its a greater
possibility that it would not be a good idea to invest in the companies. But
then, of course, as I say we would need the data to know for certain.

~~~
pmjordan
I think what you're getting at is that Angel investing isn't comparable to
buying into an index fund or so in that it's not an investment strategy for
the general population. You need domain knowledge in the area you're making
the investments, and it'll take some experience before you get good at it. And
some people will have more talent for it than others. I don't think there's
any argument about that.

The rest of what you're describing are just statistical phenomena, though. As
the source says, the distribution for returns on individual investments is
very lopsided and far from normal (Gaussian). Early stage and VC funding are
risky but potentially high-return in nature. Overall, you'd need a large
sample size to approach any sort of predictable pattern on returns [1]. And
you'd better be prepared to lose all the money you put in.

[1] <http://en.wikipedia.org/wiki/Central_limit_theorem>

~~~
Ardit20
Yes I suppose the second paragraph is more correct. I was suggesting that the
22% on average does not necessarily indicate that an individual investor is
doing great investing.

On that note, just a passing idea, seeing as the 1000 companies do make great
return, way above equities, then perhaps there should be some hedge fund or
whatever, so a bit like investment managers. Basically anyone can give to the
fund however much money they want, the fund is run by some professional
experienced people who then use the money to invest in start ups or new
businesses. That way, if the fund is big enough, you are much more likely to
get 22% return, which compared to equities is really good and of course it
greatly serves the economy and enterprenours, so basically everyone.

Is there actually such a thing?

~~~
pmjordan
Venture capital works that way, and many venture capital funds have early-
stage investment branches. In a way, Y Combinator might even fall within this
definition, as they actually re-invest money raised from VC funds.

I don't know how long you have to leave your money in a hedge fund, but I
suspect VC is longer term at around 10 years.

This isn't a direct scaling of angel funding though, as I get the impression
that the relationship between startup and angel is much less formal than to
VCs.

Take all of the above with a grain of salt, as I've never received any sort of
3rd party investment, so I don't speak from experience.

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vmind
While there should be more promotion and emphasis on the returns of angel
investing in the UK, I think it's fairly tenuous to take a report on the
market as a whole, which lacks a focus on returns, as evidence that investment
is being discouraged. Especially when quoting return figures from a report
commissioned by the same department.

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AlexMuir
Survey done in late 2008? That's pretty much at the peak surely, I wonder if
it's down as the exit routes are largely shut, or up because other investments
are offering lower returns.

