Skewed Distribution of Angel Investment Returns
In their study of US Angel investments “Returns to Angel Investors in Groups” (Nov 2007), Wiltbank and Boeker showed a return distribution where:
- 10% of exits account for 75% of the total return.
- 52% of all venture exits are at a loss.
The skew of the return distribution (below) shows the necessity and advantage for a portfolio approach to Angel investing.
Single investors, or individual members of angel groups, may have less than five angel investments. They are therefore heavily reliant on their ability to pick successful deals to avoid the probable pitfalls of such a concentrated portfolio.
Co-investment, or sidecar, funds which typically invest alongside angel groups in all, or a majority, of an angel group’s deals are far more likely to achieve the expected high returns of a well diversified portfolio of angel investments.