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?
3 thoughts on “Angel Investor Economics on a $30 Million Exit”
If my math is correct, that’s a 5x return for the angel investor. I don’t think 5x is worth the risk / reward because in my experience 90% of preferred A and B investments result in a 100% loss. No kidding either! It may actually be higher than 90%. i was with a group that invested in 23 companies from 2000 – 2002, 20 of these companies are now dead. of those 20 companies, the best return was 30 cents on the dollar. yes, that was the “best” return. the other three remaining investments might get us our investment dollars back. and remember, that’s 10 plus years and a flat return. IMO, angel investing is about a notch above the lottery.
Reads more like you were in a Friends & Doctors fund
Typo on Series B bullet point: post-money would be $5M.