Tuesday, November 20, 2012

Angel Returns Exceed VCs; Small Funds in the Angel Space Do Best; Band of Angels Reports IRR of 54%

Like us, John Frankel collects research on Angel and VC returns. He is particularly bullish on small-cap VC funds investing in the angel space, of which we have a couple of new entries founded by local angels: SideCar Angels by Rick Lucash and Jeff Stoler, and  Beta Fund by Dan Von Kohorn and Norm Meisner. 
“I finally have had the time to collate the research we have found, and am happy to share it. This post is quite technical, but the bottom line is simple: angel-stage funds outperform,” says John Frankel  founder and partner of  ff Venture Capital, writing in TechCrunch. His conclusions:

Venture capital funds, in aggregate, managed an anemic 4.41 percent end-to-end pooled return over the last 10 years. "Despite the risk and illiquidity of the asset class, they haven’t outperformed public markets."

“Angel groups, on the other hand, have done exceptionally well,” he says. Every large angel return study has mean angel IRRs ranging from 18 percent to 38 percent. Detailed exit analysis has revealed that angels have robust rates of “home run” (5x or more) investments, while maintaining a decisively lower level of risk.

Frankel argues that “smaller funds, focused on the angel space, with deep resources for due diligence and an ability to help their companies get to the next level, should outperform.”  Click here to access Frankel’s excellent tables, diagram,  and references, as well as to view his full conclusions.

Band of Angels
We first met Ian Sobieski, Cordinator of the Band, roughly a decade ago at planning meetings leading to the formation of the Angel Capital Assn.  From the web site:

 The Band of Angels is Silicon Valley's oldest seed funding organization. We are a formal group of more than 130 former and current high tech executives who are interested in investing their time and money into new, cutting edge, startup companies.” 

“The Band has invested more than $208M into 240+ companies since 1994. Of these 54 have been acquired and 9 have gone public on the Nasdaq. The cumulative IRR for all band investments since inception, including the losses suffered through the bust, is a positive 54%.”   

New Funds

SideCar focuses on filling out investment rounds that are syndicated by angel groups and microVCs.  As you know, most angel group rounds in the Boston area have more than one group participate,” says Rick Lucash. “Our goal is not to compete with established groups, but to increase deal flow and assist angel groups and companies by bringing additional money to the table.”

According to Norman Meisner, the Beta Fund intends to raise $5 million. The fund will focus primarily on emerging high-tech and bio-tech companies. “We are a small fund for small companies.  We invest early, typically at the angel financing stage, prior to typical venture capital financing, and in collaboration with other angel funds and groups. We see this as the time when value grows fastest, capital can have the most impact, and good judgment and execution can make the biggest difference.”

Who’s Next? Rumors abound that other small funds are on the way.

1 comment:

Dan Von Kohorn said...

Great article. Thank you for mentioning Beta Fund; here is a link to the website: http://betafund.co