Average Angel investment deal size has grown over the last few years to $1.7 million in 2016. However, since the median deal was only $400,000, there are a large number of much smaller deals. Overall, Angels do a large number of smaller investments and then, as these companies grow, provide an ongoing source of fewer, but much larger funding rounds. In many cases, successful companies achieve significant exits without any venture capital (VC) or other investors.
Calculating ROI Most Angels calculate their ROI in terms of their multiple returned:
if a $10,000 investment pays back $15,000 that’s a 1.5X multiple. However, this simple reporting metric fails to account for the time value of money. A 1.5X multiple over a short time is far better than the same 1.5X paid out over a long time. An alternative way to state your ROI is using internal rate of return (IRR). The IRR is the interest rate you would have required over the same period to achieve the same final lump sum payment (i.e., exit event). You can convert the multiple to IRR using the following:
Money received upon exit / Money invested = (1+R) t
where R is the IRR and t is the number of years to exit. Unless you happen to have an old HP15C kicking around, it is easier to use an online calculator (see http://www.calkoo. com/?lang=3&page=26 for a good one). Below is a table to illustrate how IRR compares to multiples over different time periods.
Calculating ROI: Comparison of IRR to Multiples Over Time
Investment
Exit $15K
Multiple
Years to Exit
IRR 50%
$10K
1.5X
1 2 5
22.47% 8.45%
10
4.14%
$10K
$300K
30X
1 2 5
2,900% 447.72% 97.44% 40.51%
10
Getting a 1.5X return in just one year is a better IRR than a 30X return paid in 10 years. However, a 1.5X return after 10 years is less than 5% IRR.
How to Achieve Good Returns
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