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Executive Summary

investors back more than 73,000 businesses each year in the US and many hundreds of thousands more around the world. these businesses are most frequently technology enabled businesses and are seen to be important drivers of innovation, GDP and job growth by most countries worldwide. while there is little academic research into angel investors, those researchers in the space have found:

• The return to angels investing in groups is viewed as attractive and perhaps as high as net annual IRR’s in the mid 20’s

• Those returns arrive over a 3 to 5 year timeframe with a tail of investments that may take longer to realize

• The failure rate experienced by angels as measured by exits where no capital is returned, is lower than that of venture capital investors - angels work hard to avoid capital losses

• The successful exits tend to be less skewed than the venture capital experience, but none the less, a majority of the total return is still returned by a small number of highly successful outcomes

• While this makes the average angel return attractive it also implies that a significant number of angel investors may still have portfolios that do not perform and in fact many angels do not see a return of capital

• The most practical way for an angel to raise the likelihood of capturing the angel return, is to ensure they are highly diversified - in terms of the number of companies they hold in their portfolio, and if they have a specific industry or sector focus, then at that specific level too

• Angels understand both the attractive returns possible, and the need for diversification

• However, angels are limited in their ability to achieve diversification. In practice most invest in far fewer early stage technology companies than preferable

This provides clarity to perhaps the most important challenge facing angels investing in groups. Given their capital constraints, their need to diversify and their desire to benefit from the angel return, they need to make many more smaller investments in angel backed technology companies. Less in more deals – diversify