|
|
May 16th, 2012 This is a follow-up to my post A simulation of angel investing.
Several readers commented on Hacker News that my first stab at a simulation was misleading because it showed negative average returns for low deal sizes, when in fact expected returns should be not only positive but constant regardless of deal size.
They are right.
I had been using payoff as the random variable, but rate of return as the measured variable. The formula for rate of return (x^(1/t)-1) places the most weight on the zero-payoff case (where return = -1.0), so the simulation results were skewed towards negative
. . . → Read More: A Simulation of Angel Investing, Part 2
May 16th, 2012 In angel investing, it’s the extreme distribution of payoffs that keeps things interesting.
If anything, it resembles buying a deep out-of-the-money call option, but with nonlinearity. If you win big you might find yourself in on the ground floor of the next Google or Facebook. That’s incredibly unlikely, but still possible.
More likely, you’ll end up with a solid 2x-5x return from a startup that grows into a viable long-term business. But most likely of all–by a long shot–you’ll lose your entire investment in another failed startup.
The most successful angels invest in a long series of deals over many
. . . → Read More: A Simulation of Angel Investing
May 9th, 2012 The Kauffman Foundation, which has ties to the venture industry, has issued a damning study of the business that addresses long-running concerns about poor performance and concludes that the limited partners who invest in funds have no one but themselves to blame.
The report, “We Have Met The Enemy…And He Is Us,” draws on lessons from 20 years of investing in venture capital by the foundation, which currently has about $249 million of its $1.83 billion portfolio allocated to venture. The Kansas City, Mo.-based organization promotes entrepreneurship and education, and is known in the venture world for creating the Kauffman
. . . → Read More: Kauffman Foundation Bashes VCs For Poor Performance, Urges LPs To Take Charge
April 16th, 2012 In 2007, Professor Rob Wiltbank reported in Returns to Angel Investors in Groups that angel investors made follow-on investment in about 30% of their invested companies. It was surprising for me to learn that follow-on investments correlated with lower returns, that is, angels that made follow-on angel investments saw returns of 1.4X their investment, while those that did not make follow-on investments enjoyed 3.6X returns. The time to exit for both groups was similar.
. . . → Read More: Study Indicates Follow-on Funding Gives Lower Returns for Angel Investors
April 30th, 2009 This is a post by Fred Wilson of Union Square Ventures. It goes through some statistics on Venture investing and ROI to imply the VC returns model is
. . . → Read More: The Venture Capital Math Problem
October 6th, 2008 If you build a portfolio of less than 20 deals, and especially if you are an early-stage investor where the industry mortality rate is somewhere in t
. . . → Read More: The Portfolio Effect: Battery’s Tom Crotty on Why VCs Should Back at Least 25 Companies in Every Fund
September 4th, 2008 Every year, angel investors and venture capital funds invest about the same amount of capital — around $25 billion in the US and $3 billion in Canad
. . . → Read More: Angel Investor and Angel Fund Returns
August 17th, 2008 This study focuses on determinants of venture capital (VC) exit choice where the three primary exit routes are IPOs, acquisitions and write-offs. We
. . . → Read More: The Determinants of Venture Capital Exits: An Empirical Analysis of Venture Backed Companies
August 17th, 2008 Contains exit returns of VC funds. Angels should expect higher returns from their portfolios given they normally invest earlier with higher risk.
. . . → Read More: SSRN-Whom You Know Matters: Venture Capital Networks and Investment Performance
August 17th, 2008 This paper provides exit returns for VC funds. Angels should expect at least VC type returns for their portfolios.
. . . → Read More: SSRN-The Exit Rates of Liquidated Venture Capital Funds by Sami Torstila, Markus Laine
|
|
