The 1st Rule in Startup Investing:
How investors lower risk & boost returns in early stage companies
Other methods profess...
Zack Miller, OurCrowd
Head of Investor Community
Meet OurCrowd’s Team
David Stark, OurCrowd
Investment Associate
Tuesday, ...
Investors now have access to startups
Tuesday, August 20, 13
The angelscometh
Capital raised in Israel
Tuesday, August 20, 13
But
investing in
startups is
risky
business...
Tuesday, August 20, 13
52% of startup
investments
returns <1x
Source: Kauffman Foundation
Tuesday, August 20, 13
So, where does risk
come from?
Tuesday, August 20, 13
Where does risk
come from?
• systemic risk: rising tides float/sink
all boats
• industry risk: just bad bets (like
nanotech...
that’s why returns compensate investors
for risk
Tuesday, August 20, 13
Angel investing returns
Startup portfolios
return about 2.5x
Tuesday, August 20, 13
But, you can
de-risk startup investing
Tuesday, August 20, 13
optimizing investing for given risk
Tuesday, August 20, 13
Harry Markowitz
Tuesday, August 20, 13
• Efficient frontier
• CAPM
• Modern Portfolio
Theory
Diversification in finance literature
Tuesday, August 20, 13
Building startup
portfolios
Tuesday, August 20, 13
Where to find opportunities: See our
last webinar, Finding the Next $billion
opportunity (Source)
Building a startup
portfo...
Parameters:
• Number of investments: At least 6
• Open questions: does an investor need to
diversify across industries, ma...
52% of startup investments
returns <1x
Remember...
Tuesday, August 20, 13
Interestingly, less than
40% of startup portfolios
returned <1x
Tuesday, August 20, 13
Other ways to de-risk
Tuesday, August 20, 13
3 things appear to
boost returns
1. Time spent in due diligence
1. >20 hours, median returns 5.9x
2. Industry experience
1...
structuring an
investment
Tuesday, August 20, 13
rights and protections
(anti-dilution rights, preemptive, etc.)
Tuesday, August 20, 13
investing tied to
performance (milestones,
tranches)
Milestone 1
Milestone 2
$ $
Tuesday, August 20, 13
co-investors
Source: Harvard, Economist
Some data
Co-workers: 60% more likely to invest, but returns -18%
Same ethnicity: ...
Summary:
angel investors make
money.
Source: Growthink
Tuesday, August 20, 13
Equity crowdfunding
makes building a
startup portfolio easier
than ever
Tuesday, August 20, 13
Value of
crowdfunding
• access to deals
• previously high minimums
made portfolio building too
expensive, giving angel
inv...
OurCrowd’s
value
proposition
Combining DIY of angel
investing with professionalism of
venture capital
One-stop portfolio b...
Intro to Portfolio RESERVE
Tuesday, August 20, 13
Portfolio RESERVE
• Automated portfolio building
• 1x funding
• Guaranteed allocation
• Opt-out feature
• Learn more (clic...
Any questions?
Zack Miller, Head of Investor Community
email: zack@ourcrowd.com
Visit OurCrowd.com
Tuesday, August 20, 13
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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.

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

  1. 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. 2. Zack Miller, OurCrowd Head of Investor Community Meet OurCrowd’s Team David Stark, OurCrowd Investment Associate Tuesday, August 20, 13
  3. 3. Investors now have access to startups Tuesday, August 20, 13
  4. 4. The angelscometh Capital raised in Israel Tuesday, August 20, 13
  5. 5. But investing in startups is risky business... Tuesday, August 20, 13
  6. 6. 52% of startup investments returns <1x Source: Kauffman Foundation Tuesday, August 20, 13
  7. 7. So, where does risk come from? Tuesday, August 20, 13
  8. 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. 9. that’s why returns compensate investors for risk Tuesday, August 20, 13
  10. 10. Angel investing returns Startup portfolios return about 2.5x Tuesday, August 20, 13
  11. 11. But, you can de-risk startup investing Tuesday, August 20, 13
  12. 12. optimizing investing for given risk Tuesday, August 20, 13
  13. 13. Harry Markowitz Tuesday, August 20, 13
  14. 14. • Efficient frontier • CAPM • Modern Portfolio Theory Diversification in finance literature Tuesday, August 20, 13
  15. 15. Building startup portfolios Tuesday, August 20, 13
  16. 16. Where to find opportunities: See our last webinar, Finding the Next $billion opportunity (Source) Building a startup portfolio Tuesday, August 20, 13
  17. 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. 18. 52% of startup investments returns <1x Remember... Tuesday, August 20, 13
  19. 19. Interestingly, less than 40% of startup portfolios returned <1x Tuesday, August 20, 13
  20. 20. Other ways to de-risk Tuesday, August 20, 13
  21. 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. 22. structuring an investment Tuesday, August 20, 13
  23. 23. rights and protections (anti-dilution rights, preemptive, etc.) Tuesday, August 20, 13
  24. 24. investing tied to performance (milestones, tranches) Milestone 1 Milestone 2 $ $ Tuesday, August 20, 13
  25. 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. 26. Summary: angel investors make money. Source: Growthink Tuesday, August 20, 13
  27. 27. Equity crowdfunding makes building a startup portfolio easier than ever Tuesday, August 20, 13
  28. 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. 29. OurCrowd’s value proposition Combining DIY of angel investing with professionalism of venture capital One-stop portfolio builder Tuesday, August 20, 13
  30. 30. Intro to Portfolio RESERVE Tuesday, August 20, 13
  31. 31. Portfolio RESERVE • Automated portfolio building • 1x funding • Guaranteed allocation • Opt-out feature • Learn more (click here) Tuesday, August 20, 13
  32. 32. Any questions? Zack Miller, Head of Investor Community email: zack@ourcrowd.com Visit OurCrowd.com Tuesday, August 20, 13

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