Data-Driven Patterns for Successful Angel
Investing Sim Simeonov sim@fastignite.com @simeons

Founding. Funding.
Growing. Startups.

Have fun
& make $$$

58
%
IRR

Cash-on-Cash
3.2x

66% lose money

45% total loss

What determines investment success?

quality deal flow picking winners
winning the deal market environment

Can you pick winners?

If you can have asymmetric
information most of the time, ignore the advice here

quality deal flow picking winners
winning the deal market environment

investment optionality
dollar cost averaging

be a player investment optionality
dollar cost averaging play a lot

Angel Investment Returns Analysis Ingredients
Instructions • Kaufmann angel 1. Clean data return data set 2. Analyze data set • Additional data 3. Reverse-engineer from angels returns probability Tools distribution • Big data kitchen 4. Do Monte Carlo 5. Adjust & repeat #4 for all interesting questions

Two things you don’t want
to see made: sausage & econometrics

The end result, however…

100% 80% >10x 60% 5-10x
3-5x 40% 2-3x 1-2x 20% <1x 0% % of % of % of % of Angels deals $inv $return

Monte Carlo results

100% Portfolio 75% Size Size
Portfolio P(return > X), % 5 10 25 50% 50 100 25% 0% 0x 2x 4x 6x 8x 10x Cash-on-Cash Return

Why do a few angels
get the lion’s share of returns?

Lucky? Smart?

Portfolio Size P(return > X),
% 15% 200% 5 10 25 50 100 Portfolio Size 10% 5% 0% 5x 6x 7x 8x 9x 10x Cash-on-Cash Return

Answer: most likely luck

100% Portfolio 200% Size Size
Portfolio P(return>X), % 75% 5 10 25 50 50% 100 25% 0x 1x 2x 3x 4x Cash-on-Cash Return

Does the lean startup movement
benefit angel investors?

P(failure) reduced from 60% to
50% 125% 100% 75% 50% 25% 0% 5 10 20 25 50 100 DiffP(x > 1) DiffP(x > 2) DiffP(x > 3)

Answer: yes but very active
angels get disproportionate benefits

What’s the effect of big
bets?

50x vs. 1000x returns cap
80% 60% 40% 20% 0% 5 10 20 25 50 100 DiffP(x > 1) DiffP(x > 2) DiffP(x > 3)

20% 50x cap, 55% fail
vs. 10% 1000x cap, 60% fail 0% 5 10 20 25 50 100 -10% -20% DiffP(x > 1) DiffP(x > 2) DiffP(x > 3)

Answer: big bets make the
most sense for very active angels

Be an active angel. Benefit
from: - portfolio effects - lean startup ecosystem - making big bets

Be a selective angel. Focus
on: - information asymmetry - low-failure opportunities - price

Econometrician seeks angel investor data
for discrete long-term relationship and intense anything-goes analysis. Must be clean and BS-free. http://sim.vc/angels