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The 1st rule in startup investing: How investors lower risk and boost returns in early stage companies
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The 1st rule in startup investing: How investors lower risk and boost returns in early stage companies

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Investing in startup companies is risky. Experienced angel investors know how to manage this risk. …

Investing in startup companies is risky. Experienced angel investors know how to manage this risk.

This presentation -- given by OurCrowd's Zack Miller and David Stark -- explains where risk comes from investing in early stage companies and uses cutting-edge research to describe methods to lower risk, boosting investment returns as a result.

What kind of returns can you expect with -- and without -- diversification?

How to build a portfolio of startups

Other methods professional investors use to de-risk investing in early stage companies

Published in: Economy & Finance, Business

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  • 1. The 1st Rule in Startup Investing: How investors lower risk & boost returns in early stage companies Other methods professional investors use to de-risk investing in early stage companies How to build a portfolio of startups What kind of returns can you expect with -- and without -- diversification? Tuesday, August 20, 13
  • 2. Zack Miller, OurCrowd Head of Investor Community Meet OurCrowd’s Team David Stark, OurCrowd Investment Associate Tuesday, August 20, 13
  • 3. Investors now have access to startups Tuesday, August 20, 13
  • 4. The angelscometh Capital raised in Israel Tuesday, August 20, 13
  • 5. But investing in startups is risky business... Tuesday, August 20, 13
  • 6. 52% of startup investments returns <1x Source: Kauffman Foundation Tuesday, August 20, 13
  • 7. So, where does risk come from? Tuesday, August 20, 13
  • 8. Where does risk come from? • systemic risk: rising tides float/sink all boats • industry risk: just bad bets (like nanotech, solar) • geographic risk: emerging markets are hot...until they’re not. • execution risk: company just doesn’t pull it off Tuesday, August 20, 13
  • 9. that’s why returns compensate investors for risk Tuesday, August 20, 13
  • 10. Angel investing returns Startup portfolios return about 2.5x Tuesday, August 20, 13
  • 11. But, you can de-risk startup investing Tuesday, August 20, 13
  • 12. optimizing investing for given risk Tuesday, August 20, 13
  • 13. Harry Markowitz Tuesday, August 20, 13
  • 14. • Efficient frontier • CAPM • Modern Portfolio Theory Diversification in finance literature Tuesday, August 20, 13
  • 15. Building startup portfolios Tuesday, August 20, 13
  • 16. Where to find opportunities: See our last webinar, Finding the Next $billion opportunity (Source) Building a startup portfolio Tuesday, August 20, 13
  • 17. Parameters: • Number of investments: At least 6 • Open questions: does an investor need to diversify across industries, maturity/ experience levels? • Equal weight vs Overweight (RSP vs SPY) Building a startup portfolio Tuesday, August 20, 13
  • 18. 52% of startup investments returns <1x Remember... Tuesday, August 20, 13
  • 19. Interestingly, less than 40% of startup portfolios returned <1x Tuesday, August 20, 13
  • 20. Other ways to de-risk Tuesday, August 20, 13
  • 21. 3 things appear to boost returns 1. Time spent in due diligence 1. >20 hours, median returns 5.9x 2. Industry experience 1. Multiples are 2x when investor has industry experience 3. Ongoing participation 1. Investors interacting with portfolio companies a couple times per month, median returns of 3.7x over 4 years Source: Kauffman Foundation Tuesday, August 20, 13
  • 22. structuring an investment Tuesday, August 20, 13
  • 23. rights and protections (anti-dilution rights, preemptive, etc.) Tuesday, August 20, 13
  • 24. investing tied to performance (milestones, tranches) Milestone 1 Milestone 2 $ $ Tuesday, August 20, 13
  • 25. co-investors Source: Harvard, Economist Some data Co-workers: 60% more likely to invest, but returns -18% Same ethnicity: 20% more likely to invest, but -25% to IPO investment Based on ability: founder with a degree from top university adds 9% to likelihood of IPO Tuesday, August 20, 13
  • 26. Summary: angel investors make money. Source: Growthink Tuesday, August 20, 13
  • 27. Equity crowdfunding makes building a startup portfolio easier than ever Tuesday, August 20, 13
  • 28. Value of crowdfunding • access to deals • previously high minimums made portfolio building too expensive, giving angel investing a bad rap • new low minimums turns every angel investor into a portfolio manager Tuesday, August 20, 13
  • 29. OurCrowd’s value proposition Combining DIY of angel investing with professionalism of venture capital One-stop portfolio builder Tuesday, August 20, 13
  • 30. Intro to Portfolio RESERVE Tuesday, August 20, 13
  • 31. Portfolio RESERVE • Automated portfolio building • 1x funding • Guaranteed allocation • Opt-out feature • Learn more (click here) Tuesday, August 20, 13
  • 32. Any questions? Zack Miller, Head of Investor Community email: zack@ourcrowd.com Visit OurCrowd.com Tuesday, August 20, 13