Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Real-Life Angel Investing Returns 2012–2016

medium.com

Post reply on HN
Print view View original

51–60 of 72 posts

Re: Real-Life Angel Investing Returns 2012–2016

#51

Post by WJW »

chii wrote: post #44
nl wrote: post #35

Earlier quoted context omitted.

> The money public investors pay to exiting shareholders do play a major role in the economy - it enables the early, IPO/angel investors to exit, and allows them to convert capital locked in the established startups to new startups, without waiting to "cash-out" using the company's profits (which may be years away). Sure, this is true. But there aren't any early investors in Exxon (for example) cashing out this way.

> But there aren't any early investors in Exxon (for example) cashing out this way. The process is continuous, until the day Exxon dies or closes shop. The chain of "cashing out" needs to be maintained for the chain to even exist in the first place. If there were no "secondary" investors, then the only way for an initial investor to reap their returns is via the profits generated, which can be many many years away. B…

I have been thinking about this a lot. The difference in preferences between classes of investors can be be huge. Pension funds and the like have massive amounts of capital and a constant demand for cashflows but relative low manpower, so they are looking for very stable investments. Angel investors are almost the opposite as they have much more "labor" available relative to their capital, so they are looking for speculative stocks where they can contribute knowledge and connections to make a difference. There is a whole spectrum of investors between these two and it makes sense for stocks to slowly migrate to being owned by the "boring" end as the underlying company matures.

Re: Real-Life Angel Investing Returns 2012–2016

#52

Post by WJW »

quickthrower2 wrote: post #43
User23 wrote: post #42

Earlier quoted context omitted.

This is a pretty normal outcome for anyone at the FAANGs who stayed through at least one full vesting cycle and had the good sense to hold their RSUs for a decade after instead of cashing them out on vest.

At what point does cashing out the stocks make sense? Should they even bother switching to angel investments?

I've noticed that in Silicon Valley, angel investing seems to have much more of a status aspect than elsewhere. Angel investors are "cool" and people will admire you during parties and whatnot. A FB engineer striking it big and starting to angel invest should be seen as a "nouveau riche buying status" move and not necessarily as a means to gain even more money (though that may be a welcome bonus of course).

The status aspect is largely missing in other areas of the world and may be one of the reasons why finding investment in SV is so much different than elsewhere.

Re: Real-Life Angel Investing Returns 2012–2016

#53

Post by iamsb »

manyhats wrote: post #23

I disagree on the choice of benchmarks as they're not really comparable. A more comparable benchmark for angel investments in Internet / SW startups would be a broad-based ETF that covers those. Picking a couple of the larger ones, I looked at the same periods (2012-2019 and 2016-2019) for each of them: FDN: 4.31x / 1.86x IGV: 4.41x / 2.27x overall mean: 3.2x Not much different than QQQ's 3.04x, but SPY is not a good…

Pure financial gains are only one aspect of angel investing though. The status and influence of being an angel investor does have its own value. Although I am not sure how you can capture that.

Re: Real-Life Angel Investing Returns 2012–2016

#54

Post by code4tee »

Interesting read. It does highlight though that this style of investing is very much dependent on hitting home runs and grand slams—-whereas you’re typical SPY investment is a series of steady base hits. All is well until you miss a few pitches, then the potential big upside flips to a big potential downside whereas base hit guy keeps truckin’ along.

Just like with hedge funds you tend to hear about the ones that did well, and not so much about the ones that lost their shirt. Also like hedge funds while there are a few recognized skilled investors for many others there’s not a whole lot of solid evidence that the “winner” investors were really smarter than the rest, just probably luckier. (Just under 50% of people betting black in roulette will double their money... that doesn’t make them good investors). Like hedge funds there are lots of, often untold, stories of people getting super lucky with returns, thinking they are “skilled” and then going out and losing a ton the next few times around.

Re: Real-Life Angel Investing Returns 2012–2016

#56

Post by M2Ys4U »

>I am lumping companies into groups if they haven’t achieve at least 5X markup. I just don’t feel it’s the right thing to do to point out in public that a company lost or is likely to lose 100% of my investment. Loss is part of the game.

If "loss is part of the game" then why not list the companies they've invested in and lost? Especially if this is for "for transparency and accountability"...

Re: Real-Life Angel Investing Returns 2012–2016

#57

Post by tjomk »

M2Ys4U wrote: post #56

>I am lumping companies into groups if they haven’t achieve at least 5X markup. I just don’t feel it’s the right thing to do to point out in public that a company lost or is likely to lose 100% of my investment. Loss is part of the game. If "loss is part of the game" then why not list the companies they've invested in and lost? Especially if this is for "for transparency and accountability"...

Likely because some of these companies are still in business, but are struggling right now, or raising another round, or are in the process of finding a buyer.

Re: Real-Life Angel Investing Returns 2012–2016

#58

Post by marc__1 »

> It’s a bit hard to give one number for the returns as if they are factual. The reality is these investments are illiquid and it’s hard to pinpoint the exact outcome

She should be using the standard way funds (and angels) observe non-liquid valuations on a quarterly basis [1]

Briefly speaking, if the company hasn't raised any new funds in the last 12 months from 'sophisticated investors' (in which case the valuation is given), she must have used a proxy valuation, like enterprise/sales comparable.

Anyways, interesting that over half of her portfolio is still active, but in line with the overall market [2]

[1] https://carta.com/blog/what-is-asc-820/

[2] https://www.sethlevine.com/archives/2014/08/venture-outcomes...

Re: Real-Life Angel Investing Returns 2012–2016

#59

Post by dcolkitt »

> When you invest in a startup, the money directly goes to the economy to build up a business, to create jobs and to actually contribute to the trickle down economy. On the contrary, investing in the public market is simply buying stocks from other investors.

This was a very informative and well-written article, but it pains me to see this misconception.

Buying investments in the secondary market does not in any way "keep money out of the economy". Aggregate savings equals aggregate investment. Period. It's one of the most fundamental tenets of macroeconomics.[1]

How do we square that with what we actually see? Certainly it's the case that if you go out and buy 100 shares of Apple, it's not like Apple receives a check. Yet for every buyer there has to be a seller. If you buy 100 shares, the seller now has $120,000 of liquid cash to reinvest somewhere else.

That seller may then originate a new primary investment himself. Or he may turn around and make a secondary investment, in which case the next seller faces the same choice. He may even just park the cash in a bank, who will then use his reserves to make loans (primary investments) or buy securities (secondary investments).

But either way every secondary investment results in a net cash balance, that then has to be reinvested by the next party in the chain. No matter how long the chain is, the supply of secondary investments is fixed. Any new capital invested in the secondary market must result in new economic investment in some way or another.

[1] https://en.wikipedia.org/wiki/Saving_identity

Re: Real-Life Angel Investing Returns 2012–2016

#60

Post by tiaxxl »

Sorry, but I had a look at the website https://brightercapital.com/#values

And my bullshit indicator is deep in the red.

" Build the Technology for the Future, Unlock Human Potential, Empower Individuals and Small Businesses, Level the Playing Field and Leave our Planet Healthy for Future Generations.

We are not afraid of taking risks. But we do look at the founding team, the idea, the traction, the founder market fit and the potential impact of a company. We are doing 30-40 direct investments per year ranging from $25K-$100K per investment depending on company stage. In addition, we are making a large number of investments on AngelList. We believe in taking risks and mitigating risks through diversification. "

Ok, a lot of words, most mean nothing. I learned that you are an Angel investor, investing $25K-$100K. Which is small but is okay for an Angel/Seed Investment. But what else? What industries? Investment objectives? I assume you mostly or only invest in IT but in the end I am guessing already.

And if you reply now " Build the Technology for the Future, Unlock Human Potential, Empower Individuals and Small Businesses, Level the Playing Field and Leave our Planet Healthy for Future Generations." then, as a person who has worked in VC, I would be out.

Post reply on HN