Returns in Angel Investing and What it Means for Crowdfunding

By Rob Wiltbank, Willamette University 

Today, we pleased to feature a guest post from Rob Wiltbank.  Rob is an Associate Professor of Strategy and Entrepreneurship at Willamette University, and the co-author of the most comprehensive research study on Angel Investing in the US.  Given the active discussion about Angel Investing and crowdfunding, we asked him to share his research, and his thoughts on what the findings mean for crowdfunding platforms like CircleUp. 

With the growing prominence of Angel groups, and the introduction of crowdfunding as a new model for Angel investing, there has been much debate about risk and return for Angel investors. Rather than speculate, potential investors, policy makers and other participants can look at the data.  What do investor returns look like? How can crowdfunding help these new Angels invest wisely? Angel investing can be quite profitable, producing outsized returns not just for the traditional industries of focus such as software and medical devices, but for investors in many areas of the economy.  I say this not as a casual observer, but as the lead researcher, along Warren Boeker of the University of Washington, for the largest study on the financial returns of angel investors in North America, the Angel Investment Performance Project (AIPP), released by the Kauffman Foundation. In fact, the data show high rates of return for angel investments across many industries, from technology to consumer products and services.  Many will be surprised with the breadth of these returns.  Even in consumer products, though the N is small (just 29 companies) investors experienced 3.6x their investment in an average of 4.4 years. The investment return data compare favorably to that of other private equity investments, including those of early-stage venture capital. Crowdfunding holds interesting promise for the Angel investing community, but it should be done with care.   A well run site will have zero anonymity, and allow for collective scrutiny and diligence from a diverse, sophisticated investor population. Investor experience, expertise, and some ongoing involvement in the ventures are highly related to stronger performance in angel investing.  Crowdfunding options that bring that mix of benefits, and great dealflow, should likely perform well. To achieve better returns, crowdfunding participants should follow some of the best practices of successful angel groups, including:

  • Promote diversification. Investing in a number of companies simply gives you more chances to support a company that really can take flight.  Find an industry you understand and take the time to make multiple investments rather than just one.
  • Leverage the intelligence of a group to do due diligence.  Leverage specific industry expertise within that group relative to each investment, and allow investors to focus on what they know best.  The data from the AIPP show improved performance when investors spent more time conducting due diligence before investing.  With a well-run crowdfunding portal, that burden can be spread among the investor base for everyone’s benefit.
  • Remain engaged post-investment.  This is perhaps the most appealing promise of crowdfunding.  AIPP data show significant performance benefits for investments that have some active participation from the investors post-close – 3.7X return on investment vs. 1.3X return for low participation.  If crowdfunding portals can lower the ‘cost’ for investors to support and engage with the company post-close, they have potential to create significant value.

The verdict on crowdfunding is definitely still out, but given what we know about returns for Angel investors, it is an idea with legitimate potential.  The devil is in the details.  Models such as CircleUp, have promise given their key practices of industry focus, tools for investors to conduct deliberate diligence, slightly later stage opportunities, and active post investment involvement.


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CircleUp is an online investment platform that connects accredited investors with innovative consumer product and retail companies.

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