Angel investors bring more than capital. The knowledge that you have, your experience, what you've done in your professional life is exceptionally important for helping the next generation of entrepreneurs achieve success.
High potential entrepreneurs in Canada do not need to exit. They do not need to sell their companies in order for the investors to achieve liquidity,
Where only a small percentage of angel investors do exceptionally well, a very wide range that don't do well at all. The distribution of returns shows that over half of all investments never return their original capital or fail completely. In contrast, 10% of exits produce 90% of total returns.
Since only 1 in 10 investments will tend to account for almost all returns, successful angels must use a portfolio diversification approach. Investing in only a couple of deals over several years is a weak investment strategy. This need for a portfolio to reduce risk is the same as the reasoning behind mutual funds or index funds.
This speaks to the importance of diversifying your angel asset portfolio through investments in angel funds and participating in angel groups so that you can engage in a thorough due diligence process. Having the appropriate depth of education and training will help to be able to decipher between the riskier bets with a low probability of success from those rare investments that have a higher probability of success.
High potential entrepreneurs in Canada do not need to exit. They do not need to sell their companies in order for the investors to achieve liquidity. Liquidity mechanisms are in development that provide angel investors with a return on their capital. This includes secondary market funds, venture capital and growth funds that provide liquidity to angel investors, and other mechanisms in development.
NACO is engaged in initiatives to increase the level of integration across the funding spectrum, so that the funding continuum is smoother between angel to venture capital. Creating greater connection between angel investors and venture capital investors, allows for venture-grade companies to graduate out of the angel investment portfolio into the venture capital portfolio, and continue on to growth.
More on this topic in future episodes.