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This Data Helps Angels 'Go Beyond' Returns

This article is more than 8 years old.

I love it when there is real data to learn from in angel investing.  True financial return data of angel investors is rare, so I was intrigued when I saw a report by global angel group Go Beyond Investing with real data and analysis on the returns experience of each of its member angels.

The Go Beyond Investor Report looks at every investment made by 164 active member angels and provides some of the first published reports on the actual returns of each investor.  It is unique not only because the focus is on the returns of individual investors, but because there is an audit trail for the numbers Go Beyond’s platform captures all of the activity so numbers are not self-reported by the investors.  The group’s members made 36 investments since 2008, with five companies out of business to date, and two successful exits by acquisition.  Each individual angel decides which companies to invest in.

Bottom line: 87 percent of the investors made a positive annual return.  As a group, they’ve already had 1.2 times their total investment returned in cash, and many of the companies in the portfolio remain active, increasing the chance for more returns over time.

But what is even more important is the real story the study reveals beyond bottom line: these investors took steps to become professional angel investors by understanding and following smart practices to achieve great returns. Here’s my take on the study, noting that many of the Go Beyond observations match the practices recommended from a macro study of American angel investor exits:

Take a Portfolio Approach

Developing a portfolio strategy for your angel investing is critical, and is best done before writing your first check.  Why? Angel investing is a risky asset class. Developing an angel portfolio helps mitigate the risk.  Portfolio strategy requires several approaches:

  • Write multiple checks – The Go Beyond Report recommends making at least five investments. The angels who made five or more investments, called “portfolio builders,” had better returns than other member angels. 97 percent had a positive annualized return.  The report observed that “the chances of achieving a predictable and positive return are more likely if an investor builds a portfolio of between 5 and 10 investments (either companies or rounds) rather than taking a ‘one-off’ lottery approach.”
  • Write the size of check that fits your bank account – Angels are individuals and naturally their wealth levels vary. Many in the US just meet accredited investor income or net worth requirements. Go Beyond investors, from Europe, the US, and other countries, had a similar distribution. For angels with less to invest, this translates into writing smaller, right-sized checks to fit personal means – and that’s OK, especially because all angels need to be prepared to write multiple checks.  The report found “investing larger or smaller sums as a Go Beyond investor is not a predictive factor of performance.”
  • Plan for funding additional rounds in portfolio companies - Go Beyond’s founder Brigitte Baumann says it is important to back the winners in your portfolio in ever increasing amounts.  Angels should reduce the amount or not invest in follow-on rounds of companies that are not performing.  Go Beyond has mechanisms in place to help angels understand which investments are failing.

Learn from Other Angels

  • Join angel groups – Evaluating deal opportunities with other angel investors offers individual angels a way to leverage the “intelligence of the community.”  Many offer excellent processes for attracting good deals as well as evaluating and negotiating them, but more importantly connecting with and supporting the entrepreneurs after the investment.
  • Participate in education and training programs – Angels can find formal education and on-the-job training while in angel groups. I am particularly impressed with the programs Go Beyond has developed, including a one called a “get going” program for new angels and a certification program for more advanced deal leads.  These programs are working as 40 percent of Go-Beyond’s members are first-time angels, and the majority of their members took training.

Do Due Diligence

Looking deeper into investment opportunities is an important part of the process.  Go Beyond focuses its due diligence teams in two ways, through sectors comprised of members with deep sector knowledge, and in geographic regions where members live and can provide local business knowledge and experience.

I like how Baumann, who is also the 2014 EBAN European Business Angel of the Year, summarizes what Go Beyond has learned. She says, “We don’t claim to de-risk early stage investment. A portfolio approach is critical for delivering success to angels, but we have identified a way to equip investors to make decisions based on knowledge for the task at hand and to have a good experience.”

Cheers to Go Beyond for sharing their data and observations.  This work is an important part of growing the angel investor field, or dare I say “asset class.”