Company Valuations
20
20
18
15
10
8
7
5
5
2
0
< $2M
$4–6M
$6–8M $8–10M
> $10M
$2–4M
Valuation (millions of $)
Source: Mason & Tjahjakartana , 2016 Report on Angel Investing Activity in Canada
How many companies do you need in your portfolio? The general suggestion among Canadian Angels is 20 companies. Dr. Wade Brooks estimated that you need 40 companies to have a 95% chance of getting the average IRR of 27%. A portfolio of 20 companies would give you a 60–70% chance of hitting the average. (NACO National Angel Summit, 2015) Of course, success takes more than just luck and a large portfolio. Angel experience, length of due diligence, and post-investment participation in company coaching and governance also significantly increase the rate of return and the chances of successful exits. (Wiltbank & Boeker) Again, these numbers can be misleading. Angel investment practices across Canada vary tremendously, and we will explore this diversity in more detail as we go through the six chapters of this book. To start, you must know yourself and Set Good Targets , so that’s explored in Chapter 1. How much time and money do you want to put into each investment? How many investments will be in your portfolio? How active do you want to be in the management of your investees? Do you want to be a Lone Wolf or a member of an Angel group? Do you want to just dabble or devote significant time to this over many years? The answers to these questions may vary over the years or from deal to deal.
Pop Quiz With a pre-money valuation of $5 million, how much of the company does a $1 million investment buy?
14 A Practical Guide to Angel Investing
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