My friend Marianne Hudson, who runs the Angel Capital Education Foundation for the Kauffman Foundation
has released a new study saying that angels are getting an average IRR of 27% on their investments. The study consisted of 86 organized angel groups and 539 individual angels. These angela averaged 2.6x on their money over 3.5 years. Damn, that’s good. I never have figured out my own IRR, because I’ve been in some companies for ten years before I see an exit, and in other situations I simply take convertible debt and choose not to stay in the investment when I can get my debt repaid.
And anyway, I don’t really angel invest by the numbers; I do it for passion and I go by intuition.
Well, that’s a lie. I’ve been angel investing for thirty years, and by now it’s less intuition than experience. But it still isn’t strictly by the numbers. I want to invest in technology that will “change the world,” or at least the space in which it competes, and will give an entrepreneur a start on a path. For that reason, I keep the amount of investment small. If I lose it, I don’t die. And I keep it specific. Money for the patent attorney. Money for the trips to Silicon Valley to pitch the big guys. Money to keep the servers up.
This is often the hardest money for an entrepreneur to come by.