Success Factors

First, let’s underline that distribution of returns for this type of investment varies quite a bit, which in statistical terms mean the skewness is rather high. This is different compared to typical stock market investments and is, therefore, critical to understand. Looking at different studies, you will find data that shows that roughly 50% of all deals will return less than the investment, while roughly only 8 to 10% of investments accounts for over 75% of the total investment returns.

That means that all investors, business angels and venture funds alike, win and lose in deals.

Nevertheless, the assumption is that most funds are more diversified than average business angels investments. Looking at Venture portfolio theory, the likelihood of having winners in the portfolio increases with the number of deals, up to a point (approximately 50 companies), when additional investments might even start to exhibit negative effects (see this overview). So, what do we consider key factors in having successful startup investments?

1. The time investors spend working with firms pays off. This does not only account for time you spend with a company after your investment, but also time spent on due diligence prior to an investment. Those investors who interact with their portfolio companies – at least a couple of times per month – by mentoring, coaching, providing leads, and/or monitoring performance will see their returns being positively impacted.
2. Experience. The amount of actual expertise in the industry of the venture, in which an investor invests, is strongly related to returns.
3. Network – the better the network of investors, the more likely a startup is to win the ultimate growth battle (if they get to this point). Venture is a relationship business. Ties between funds and investors matter a lot, friendly introductions from investors who had success together prior will increase chances of winning co-investors, which must not be underestimated.
4. Invest early and know when to sell. Timing is the most crucial factor in venture capital investments. The risk reward ratio is the steepest in early stages, but there might be options to sell early in secondary transactions in follow-on rounds. This should be considered even though the total returns will be lower, as they will come sooner and some of the risk, if things going south later on, are mitigated.
5. Beware of the minefield. Single angels are likely to be prohibited to write checks once VCs enter the game. Teaming up with a syndicate (angel group or angel fund) will strengthen your position to keep on investing and prevent you from getting muscled out.

As part of our mission we aim to bring the best of both worlds, venture capital fund-management resources, global network, and hands-on business angels with deep experience, together. Our team analyses more than 2,500 deals per year and will invest in less than 10. We believe in selection of the best of the best and are known to be tough to win. On the other hand, we offer to be partners until an exit and will open a strong network to founders, which ultimately opens much bigger growth and success for our portfolio companies – if they succeed and become part of the family. Our members generally invest in syndicates, this keeps the cap-table of founders clean and will represent a bigger stake in companies. Follow-on investments may be provided within this syndication fund from other members, with deeper pockets but less risk appetite, in later rounds.