Tracking Angel Returns - piling in?

In a follow up to this post, we need to explain why the 22% annualized rate of return for angels in groups is possible – and doesn’t get “competed away” when everyone finds out about it and piles in. My theory is that it’s very hard to “pile in” to early stage investments.

1)      If you’re an individual, you probably aren’t even allowed to invest in early stage companies – so large “retail” investors likely can’t impact the asset class. (This may change as equity crowdfunding kicks in – but I doubt it, at least for a while.)

2)      If you’re an institutional investor, how do you deploy $100 million into early stage capital? There is basically no cost-effective or logistically feasible way – even though, in total, angels invest $25 billion in early stage companies each year.

3)      If you’re in California, how do you evaluate and invest in early stage companies in North Carolina? You don’t. Angel investing is a local activity: 93% of VentureSouth’s deployed capital has been here in the Carolinas. Even despite technology, angel investing remains an in-person and localized pursuit.

It’s likely impossible for one unified market to generate 20%+ returns consistently over time. But hundreds of illiquid, hard-to-access, opaque, and highly-localized markets could keep generating, on average, such results.

At VentureSouth, this our target – a portfolio return of 20% net to investors – and we are on track to get there.