WSJ.com: Success Rate for Angel Investors

source =WSJ "small talk" question/answer section Jun 16th 2008source =WSJ "small talk" question/answer section Jun 16th 2008

Q: What's the success rate of angel investors who invest through angel networks?

A: A 2007 study of 539 angels involved with groups, sponsored by the Angel Capital Education Foundation and the Kauffman Foundation, found that the average return of group-affiliated angels was 2.6 times the initial investment in 3½ years.

But the range of performance was wide: Only 48% of the investment exits made a profit, meaning more than half did not. On the other hand, if you do make a profit, it could be a big one, since the investors who didn't make a profit dragged down the average.

The survey also found that three factors improved an angel investor's odds of success: due diligence, experience in the industry and interaction with the company investment. The average angel investor affiliated with a group has invested for nine years and made about one deal per year.

Bill Payne, a longtime angel in Las Vegas who's made 45 investments both individually and through angel groups, says there are real advantages to investing

in groups rather than solo. The groups provide due diligence, extra research, access to potential deals and shared expertise that one person generally doesn't have. For instance, one member of an angel group might have background in a particular industry or know how to set up deal terms, sharing that knowledge with the other

investors.

"If you have 50 members of a group, it's pretty likely that someone has experience in widget manufacturing," Mr. Payne says.