Summary of Kauffman Foundation Study
"Returns to Angel Investors in Groups"
This study was written by Robert Wiltbank, Ph.D., and Warren Boeker, Ph.D. It was undertaken with support from the Ewing Marion Kauffman Foundation and Angel Capital Education Foundation. It was published in November 2007.
Steve Rhodes, CEO of the Misgav Venture Accelerator, has prepared this summary of the study.
This recent study of over 1,000 angel investments, sponsored by the Ewing Marion Kauffman Foundation, found that – on average – "angel investors participating in organized angel groups achieved an average 27 percent internal rate of return on their investments," higher than the average returns on traditional venture capital investments. Despite the high returns, the study also noted the high risk associated with angel investing: in just over half of the investments examined the investors lost some or all of their investment.
We believe that incubator investing provides one of the best models for angel investing across a portfolio of high risk, high potential companies. And this seems to be strongly supported by the Kauffman study: One of the important conclusions of the study was that the more expertise the angel group brings to bear on the investment, the higher the likelihood of success. The study cited three areas where the Misgav Venture Accelerator places great emphasis.
- Depth of due diligence: According to the study, returns were significantly improved by above-average due diligence. Led by Lior Yankelson, the Misgav Venture Accelerator spends many long hours evaluating every aspect of a potential investment. Lior's review is supported by the extensive involvement of the members of our Investment Committee, Trendlines consultants, and incubator staff.
- Industry expertise: Kauffman found that returns were almost twice as great when the investors had industry expertise. By focusing on life science investments at Misgav, we build on our many years of experience and contacts in the life science industry, and create a critical mass of know-how that can be utilized across companies.
- Involvement: The angel group's involvement through mentoring, coaching, and financial monitory are significantly related to the investment's likelihood of success. According to the study, a high degree of involvement correlated with an average return that was almost three times greater than when involvement was more limited. Misgav's level of hands-on support for our companies at every level is unsurpassed at any incubator in Israel; add to this the commitment of our parent, TIF Ventures, to provide business development and investment banking support to our companies, and you have the ideal situation for young companies.
While I admit to not being surprised by the Kauffman findings, I must also admit to being relieved – the study provides solid evidence to support the approach we have been taking to the process of starting and building new businesses at Misgav. Read the full study (PDF format). About the Ewing Marion Kauffman Foundation: The Ewing Marion Kauffman Foundation is dedicated to "helping individuals attain economic independence by advancing educational achievement and entrepreneurial success." It is the 30th largest foundation in the United States with a $2 billion asset base.
|
