I think this is a fascinating topic in its own right. It provides some motivation for some one who wants to be an Angel (pun intended).
Here is the link to the study. I just reproduced the summary below:
The historical picture of angel group investor outcomes offers lessons in the practice of angel investing. These include:
Due diligence time – Investors experienced better returns in the deals where they exercised more due diligence. Sixty-five percent of the exits with below-average time spent on due diligence reported a return that was less than their original investment. Losses occurred in only 45 percent of the deals where investors did above-average due diligence.
Industry expertise – Analysis indicated that expertise has a material impact on angel investors’ returns. Returns were nearly double for investments in ventures where the investor had related industry expertise.
Participation – After an angel makes an investment, his or her participation in the venture – through mentoring, coaching, and financial monitoring – is significantly related to that venture’s returns, according to the study.
Follow-on investing – Deals where the angel investor made follow-on investments generated significantly lower returns. In ventures where follow-on investments were made, nearly 70 percent of the exits occurred at a loss. The study recommended additional research to determine the impact of other factors in these results.
I will add a couple of observations based on my own experience (mostly failures):
- It is better to invest in times of steady or subdued activity than times of euphoria
- It is better to do the due diligence yourself. If you don’t have the time to do it, hang on to your money
- Don’t ever invest because some one you trust and made money as a VC or Angel invested
- More angels with smaller amounts is in my opinion better than a few angels with larger amounts
Let me explain the last bullet. What you need from angels, more than money is help in building your startup. If each angel can turn into a micro-mentor, you will get a lot more help than just a check.
Some one once talked to me about the concept of micro-angels. C.K.Prahlad talked about it in his keynote at TES2008 as micro-investors. Imagine 100 investors putting in Rs. 10,000 (or $200) each in your company. Imagine that they are your unofficial PR team and some of them, even potential customers.