The 1st Rule in Startup Investing:How investors lower risk & boost returns in early stage companies
Other methods professional investors use to de-risk investing in early stage companies
How to build a portfolio of startups
What kind of returns can you expect with -- and without -- diversification?
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Zack Miller, OurCrowdHead of Investor Community
Meet OurCrowd’s Team
David Stark, OurCrowd Investment Associate
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Investors now have access to startups
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The angels cometh
Capital raised in Israel
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But investing in startups is
risky business...
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52% of startup investments returns <1x
Source: Kauffman Foundation
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So, where does risk come from?
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Where does risk come from? • systemic risk: rising tides float/sink
all boats
• industry risk: just bad bets (like nanotech, solar)
• geographic risk: emerging markets are hot...until they’re not.
• execution risk: company just doesn’t pull it off
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that’s why returns compensate investors for risk
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Angel investing returns
Startup portfolios return about 2.5x
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But, you cande-risk startup investing
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optimizing investing for given risk
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Harry Markowitz
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• Efficient frontier• CAPM• Modern Portfolio
Theory
Diversification in finance literature
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Building startup portfolios
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Where to find opportunities: See our last webinar, Finding the Next $billion opportunity (Source)
Building a startup portfolio
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Parameters:
• Number of investments: At least 6
• Open questions: does an investor need to diversify across industries, maturity/experience levels?
• Equal weight vs Overweight (RSP vs SPY)
Building a startup portfolio
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52% of startup investments returns <1x
Remember...
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Interestingly, less than 40% of startup portfolios
returned <1x
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Other ways to de-risk
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3 things appear to boost returns
1. Time spent in due diligence
1. >20 hours, median returns 5.9x
2. Industry experience
1. Multiples are 2x when investor has industry experience
3. Ongoing participation
1. Investors interacting with portfolio companies a couple times per month, median returns of 3.7x over 4 years
Source: Kauffman Foundation
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structuring an investment
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rights and protections(anti-dilution rights, preemptive, etc.)
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investing tied to performance (milestones,
tranches)
Milestone 1
Milestone 2$ $
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co-investors
Source: Harvard, Economist
Some dataCo-workers: 60% more likely to invest, but returns -18%
Same ethnicity: 20% more likely to invest, but -25% to IPO investment
Based on ability: founder with a degree from top university adds 9% to likelihood of IPO
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Summary:angel investors make
money.
Source: Growthink
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Equity crowdfunding makes building a
startup portfolio easier than ever
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Value of crowdfunding
• access to deals• previously high minimums
made portfolio building too expens i ve , g i v i n g ange l investing a bad rap
• new low minimums turns every angel investor into a portfolio manager
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OurCrowd’s value
propositionCombining DIY of angel
investing with professionalism of venture capital
One-stop portfolio builder
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Intro to Portfolio RESERVE
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Portfolio RESERVE
• Automated portfolio building
• 1x funding
• Guaranteed allocation
• Opt-out feature
• Learn more (click here)
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Any questions?
Zack Miller, Head of Investor Communityemail: [email protected] OurCrowd.com
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