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We’ve reported in the past that portfolios with more early-stage venture investments tend to generate higher returns. We recently looked at the AngelList platform data to understand more about AngelList SPV returns and how that fits in with our previous research.
The AngelList platform has generated returns, net of fees, of 26.5% per year for investors (LPs) dating back to 2013*. One might presume, then, that the typical AngelList startup investment returns 26.5% per year, with some variance. As such, investing in lots of startups (i.e., having a larger total portfolio) could be a good approach because it might lower the variance of returns in the portfolio.
However, one of the key insights of our previous research has been that winning startup investments follow a power-law distribution, with extreme outliers and a huge disparity between average (mean) and typical (median) investment returns. Under this extreme power-law return regime, investing in more startups could be a good idea because it might increase portfolio returns, rather than lower variance.
To differentiate between these two investment approaches we asked: what happens to the typical startup investment on AngelList? The following graph displays the return multiple to LPs (i.e., net total value paid in) of all SPVs on the AngelList platform for the first 1-5 years (displayed in months) after the investment was closed**:
You’ll note that net TVPI starts out slightly negative for virtually every SPV because of fees paid by the SPV. It takes the typical (median) SPV about three years to get to breakeven. The median SPV then hovers right around a 1x return. Even the 75th percentile of SPVs only get to a 2x return after about 4 years, or a net IRR of 19%—still well below AngelList platform performance.
