Follow-on Funding: A Dilemma for Angel Investors
In 2007, Professor Rob Wiltbank reported in Returns to Angel Investors in Groups that angel investors made follow-on investment in about 30% of their invested companies. It was surprising for me to learn that follow-on investments correlated with lower returns, that is, angels that made follow-on angel investments saw returns of 1.4X their investment, while those that did not make follow-on investments enjoyed 3.6X returns. The time to exit for both groups was similar. Frankly, the conclusion that angels who make follow-on investments can expect lower returns is distressing to me. At a time when venture capital, on average, has moved to later stage investing, angels need to plan on making multiple investments to help startups survive to positive cash flow and eventually to exit….
Andy Hamilton
Bill Payne
Dr. Leith Oliver
Josh Rea