Angel Investing Strategies for Family Offices

In a video about angel investing for family offices, Richard C. Wilson presents research on angel groups and ways to shape an investment strategy.

Richard C. Wilson explains how family offices can shape an angel investing approach around their knowledge, available time and access to opportunities. He draws on research about angel groups, then compares ways to select and participate in early-stage companies. The discussion covers focused and broad approaches, along with the choices involved in evaluating and supporting companies.

In this video: Richard C. Wilson (Presenter)

What they said

1. Richard on due diligence time and returns. Richard says investors who spent more than 20 hours on due diligence saw an average return of nearly 6 times their investment, while those who spent less than 20 hours averaged a 1.1 times return. Investors who spent more than 40 hours saw greater than 7 times, and the mean time spent on due diligence was 60 hours. (at 0:29)
2. Richard on industry experience and returns. Richard says investments where angels had deep related industry experience saw double the average returns compared with companies where investors had low industry expertise. He says that experience may help investors evaluate opportunities and contribute mentoring or useful connections. (at 1:23)
3. Richard on company involvement and returns. Richard says investors who met entrepreneurs at least once a month to mentor, coach, make connections or monitor financial performance saw an average of 3.7 times. Those meeting companies only once or twice a year saw 1.3 times returned. (at 2:22)
4. Richard on follow-on investment results. Richard says nearly seven percent of exits by angel investors who made second or third investments resulted in a loss of capital. Companies without follow-on investments saw an average of 3.6 times returns, compared with a barely positive 1.4 times for companies with follow-on investments. He cautions that the data doesn't distinguish doomed deals from winners receiving more funding. (at 2:51)
5. Richard on exit size and timing. Richard says the data he cites points to most exits being under 20 million and M&A exits happening sooner in a company's life cycle. He says a 3 times return in three years can mean a 44% internal rate of return, which many investors would be happy with. (at 7:32)

In their words

"the big questions are what do you have to offer and how much time can you spend with each investment"

"it is important to look for these patterns because they don't always match your initial strategy"

Why it matters if you are building or preserving great wealth

Richard's comparison of Silicon Valley and Wyoming makes location a constraint on the spray and pray approach. He says 30 deals at $25,000 each take at least $750,000 before follow-on investments. Deal access and available capital shape whether that broad approach is practical for a family office.