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Patterns of Successful Angel Investing by Simeon Simeonov

This document discusses key insights into successful angel investing, emphasizing the importance of quality deal flow, information asymmetry, and being an active investor. It highlights that while many angels lose money, those who leverage data analysis, Monte Carlo simulations, and the lean startup movement tend to achieve better outcomes. The role of luck versus skill in obtaining returns is debated, with an assertion that active angels benefit more from making larger bets.

Economy & Finance◦
Related topics:
Venture Capital•
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
Patterns of Successful Angel Investing by Simeon Simeonov