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    What Angels Make

    By Lee Bruno  

    November 19, 2007 

    This article is published in partnership with Innovation Pipeline
     

    What Angels Make
    New study from the Kauffman Foundation reports on returns made by angel investors.
     
    A study released recently by the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation, “Returns of Angel Investors in Groups,” revealed angel investors achieved an average 27 percent internal rate of return on their investments. It found angel groups participated in exits that generated 2.6 times their invested capital over a 3.5-year period. That kind of return is in line with other private-equity investments, including those of early-stage venture capital. It also found that only 7 percent of exits generated returns above 10 times their initial investment.
     
    The study was conducted over the past year and analyzed results from 86 organized angel investor groups throughout the U.S., involving 539 individual angel-group investors.
     
    What findings in the study surprised the author Robert Wiltbank of Willamette University, says two things impressed him. One, that rates of return are good and two, that the success of angel groups is not random (as some critics suggest). “Some people think of angels as reckless investors. The study revealed that’s not the case,” Wilbank says.
     
    When it comes to determining what early-stage startups deserve investment, one doesn’t have to look much further than the recent California Clean Tech Open competition. Among the participants was a smart power solution from Lucid Design Group. The three-year-old Oakland, Calif.-based startup bases its technology on research from Oberlin College. It has developed a software and sensor service that monitors the real-time use of electricity, natural gas and water.
     
    Another participant was 1-Solar. The company designs a solar inverter (which converts to AC for household appliances to use) that weighs less than 20 pounds and lasts 15 years or more. It’s well suited to the world of solar photovoltaics, which is pushing costs down and increasing efficiency.
     
    Strong return potential for angels and plenty of new ideas and innovation in clean tech foreshadows more success ahead. Let’s hope so, because it’s going to take a lot of entrepreneurial energy and focus to generate returns and improvements to society.

     



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