Angel Investor Performance & Strategy Data from the U.S. and U.K. Robert E Wiltbank, Ph.D. Associate Professor of Strategy Willamette University 503 715 7894 Wiltbank@Willamette.edu

Business Angel Data Sample Frame: ‘publicly seeking’ angel groups - Data from 117 different angel groups - 700 angel investors included in the data thus far, experienced 1,542 exits - Individual response rate: 15% Sample Bias? U.S. Sample: No Significant Self Selection Biases Outcomes are uncorrelated to the response rate of a group. 2.6X for 7 high response rate groups (2/3 response) vs. 2.4 for low rate groups Median multiple was 1.2 for Hi rate groups, 1.4 for low rate groups

Group Affiliated Angel Investors Make just more than 1 investment per year Greater variation in UK work experience than US angels They had founded a median of 2.5 companies (27% founded 0) Most everyone (95%) had worked for at least a few years in a large firm 24% had operated as public servants for at least a year or two. Median of 10% of their personal wealth in both US & UK About a 2/3 vs. 1/3 split, active vs. passive investors In UK 2007/2008: Reviewed 20 opportunities made 3 investments 24% of the investments likely not made without tax incentives

Distribution of Returns by Venture Investment Hold: 3.0 yrs. UK: Overall Multiple: 2.2X Holding Period: 3.6 years Approx 22% IRR Hold: 3.3 yrs. US: Overall Multiple: 2.6X Holding Period: 3.5 years Approx 27% IRR Hold: 4.6 yrs. Hold: 4.9 yrs. Hold: 6.0+ yrs. Green Bars: U.K. % of exits in that Category (prelim) Blue bars: U.S. % of exits in that Category

Entrepreneurial Expertise More entrepreneurial expertise (number of ventures founded) is significantly related to better outcomes. In the U.S. 85% of angel investors are cashed out entrepreneurs Somewhat lower in the U.K., a larger variation in the experience of angels U.K. Angels invest in later stage opportunities than U.S. Angels 15% vs. 32% seed stage, 36% vs. 18% early growth

Participation post investment Interaction: hi interaction had significantly less failure Low interaction (quarterly/annually/rarely) failed 61% of the time Hi interaction (daily/monthly/weekly) failed 44% of the time UK: Board Role: related to better returns (related to entre expertise) Significantly better returns in regression analyses, the largest effect size Passive vs. Active Passive was significantly related to smaller investments and worse returns

High = 1 or 2 times per month The Impact of Participation in the U.S. High = 1 or 2 times per month Low = 1 or 2 times per year High 3.7X (4.0 years) Low 1.3X (3.6 years)

The Impact of Time in Due Diligence Median: 20 hours 26% involved over 40 hours Overall Multiple for High Diligence 5.9X (4.1years) Overall Multiple for Low Diligence 1.1X (3.4 years)

30% of deals had follow on investments. Follow-On Investment from Same Angel Investor 30% of deals had follow on investments. No 3.6X (3.3 years) Yes 1.4X (3.9 years)

Angel Performance Project There is practical value in researching angel returns The strategic choices involved in angel investing influence the success and failure of angel investors. Research on the process and outcomes can help improve your next investment. The full reports are available online through the Kauffman Foundation and NESTA Robert Wiltbank Wiltbank@Willamette.edu

Challenges in Angel Investing Deal Flow is critical, and can be very spotty Especially true for individuals, still true for groups in smaller metro areas Compensation and Capability issues in groups. Active vs. inactive members performing due diligence and oversight. Capital Waves Strong early activity to max capacity often happens before successful exits Negotiating leverage in growing deals Angel groups are doing some later stage round, but struggle to control terms Dispersion of returns: sidecar funds and group cohesion. Spread out the “winnings”? Interfere in the action?

At the Core of Entrepreneurial Expertise Non Predictive Control in Angel Investing: Select ventures that appear most capable of influencing critical market elements. Create and Influence localized markets, rather than compete in large “ideal” ones. Emphasize the current means and capabilities of the venture rather than on plans for acquiring the “best” means to reach their original goals. Adjusting goals is less expensive than acquiring different means. Commitment is more important than Best. Encourage the venture to make smaller investments that get to cash flow positive rather than investing in the resources suggested by market research to “hit plan.” Overhead trails growth Avoid prediction as the basis for investment decisions. Emphasize affordable loss rather than maximizing expected values. Control is related to a reduction in failures, homeruns appear random.