There is a lot on the topic, but I thought it might be fun to look at how my first 9 angel investments have done.
We can learn a lot.
The data is slightly simplified, but here it is:
That $200,000 is now worth $1.68m, or 8.3x
What can we learn?
- Power laws matter. As you can see, 1 investment accounts for 75% of the total cohort value — even with a very, very high hit rate. It has both the largest return mutiple (15x) and represents the largest check/investment (by 1.8x).
- Check size and ownership matter. The #2 investment, Company C, is also strong at 10x, but the amount invested was too little. A great investment with a tiny check is really just a good investment.
- Smaller losses don’t matter too much. You can see that writing off any of these checks per se wouldn’t matter much. But …
- All that matters is being in winners. Small wins don’t move the needle. Company G is a great company, but even 4.6x there is immaterial. Small loses are also irrelevant, per the prior point. But without Company A, the portfolio multiple would still be OK (4.5x), but not nearly as compelling on an absolute basis (only 35% of the absolute gains).
- Unicorns help a lot. Three of these will be unicorns. Even with small checks and angel investing, it can be tough to do 8x or more without them.
- You can make much more as a founder — if you are a great founder. It takes 10+ years to get liquidity here. What else could you do with a decade? I didn’t invest too much here when I started, but even with $1.4m in gains, over 10 years, that’s only $140k a year. Hmmmm. A great founder can do a lot better than $140k a year, annualized, even with a fairly modest exit …
- Invest more. Don’t invest more than you can afford to lose. But invest more in anything good. Buy every share you can. More on what I’ve learned there here: Algolia: From Impossible to Inevitable | SaaStr
- Time is your ally in a good/great SaaS company. This batch may end up around 16x in another 24 months, if the markets stay strong. I.e., with zero more work on my part, this $1.6m has a good chance to double to $3.2m. That’s when it starts to get interesting. And my work in helping these companies, or really doing much of anything … is mostly done. Not totally. But mostly. So if you do investing right, your money really works for you in venture a few years down the toad.
This is just my first batch from a little while back.
I’m writing much larger checks now ($750,000 to $5,000,000) …
But it’s interesting to see how it reinforces a lot of the general learnings in venture investing.
View original question on quora
