Recently a strong Atlanta technology company had a great exit with only angel investment and no venture investment. Not knowing any particulars of the deal, I think this is an instructive example to theorize on the economics of an outstanding angel investment. To make it simple, let’s assume a $30 million exit on $3.5 million of angel investment after six years in business.
Here’s how angel investor economics might look for a generic, successful technology startup that exits for $30 million:
- Series A – $500,000 invested at a $2 million pre-money valuation resulting in a $2.5 million post-money valuation and the investors owning 20% of the business
- Series B – $1 million invested at a $4 million pre-money valuation resulting in a $5 million post-money valuation and the new investors owning 20% of the business from the new round (existing investors are diluted by 20% to 16% but likely participated pro-rata)
- Series C – $2 million invested at a $8 million pre-money valuation resulting in a $10 million post-money valuation and the new investors owning 20% of the business (Series A and Series B investors get diluted unless they participate pro-rata with Series A owning ~13% and Series B owning 16%)
- Total investor ownership: Series A at 13% plus Series B at 16% plus Series C at 20% for a total of 49% of equity
- Exit values:
Series A at 13% of $30M = $3.9M for almost an 8x cash on cash return
Series B at 16% of $30M = $4.8M for a 4.8x cash on cash return
Series C at 20% of $30M = $6M for a 3x cash on cash return
Again, these is an outlier example that isn’t common — most angel investments don’t even return the amount of money invested, let alone a return. Generating a return of nearly $15M on a total investment of $3.5M in six years is an excellent angel investment.
What else? What are some other thoughts on the this example angel investment and outcome?