The 1st rule in startup investing: How investors lower risk and boost returns in early stage companies

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Investing in startup companies is risky. Experienced angel investors know how to manage this risk. This presentation -- given by OurCrowd's Zack Miller and David Stark -- explains where risk comes from investing in early stage companies and uses cutting-edge research to describe methods to lower risk, boosting investment returns as a result. What kind of returns can you expect with -- and without -- diversification? How to build a portfolio of startups Other methods professional investors use to de-risk investing in early stage companies

TRANSCRIPT

  • 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?

    Tuesday, August 20, 13

  • Zack Miller, OurCrowdHead of Investor Community

    Meet OurCrowds Team

    David Stark, OurCrowd Investment Associate

    Tuesday, August 20, 13

  • Investors now have access to startups

    Tuesday, August 20, 13

  • The angels cometh

    Capital raised in Israel

    Tuesday, August 20, 13

  • But investing in startups is

    risky business...

    Tuesday, August 20, 13

  • 52% of startup investments returns
  • So, where does risk come from?

    Tuesday, August 20, 13

  • 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 theyre not.

    execution risk: company just doesnt pull it off

    Tuesday, August 20, 13

  • thats why returns compensate investors for risk

    Tuesday, August 20, 13

  • Angel investing returns

    Startup portfolios return about 2.5x

    Tuesday, August 20, 13

  • But, you cande-risk startup investing

    Tuesday, August 20, 13

  • optimizing investing for given risk

    Tuesday, August 20, 13

  • Harry Markowitz

    Tuesday, August 20, 13

  • Efficient frontier CAPM Modern Portfolio

    Theory

    Diversification in finance literature

    Tuesday, August 20, 13

  • Building startup portfolios

    Tuesday, August 20, 13

  • Where to find opportunities: See our last webinar, Finding the Next $billion opportunity (Source)

    Building a startup portfolio

    Tuesday, August 20, 13

  • 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

    Tuesday, August 20, 13

  • 52% of startup investments returns
  • Interestingly, less than 40% of startup portfolios

    returned

  • Other ways to de-risk

    Tuesday, August 20, 13

  • 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

    Tuesday, August 20, 13

  • structuring an investment

    Tuesday, August 20, 13

  • rights and protections(anti-dilution rights, preemptive, etc.)

    Tuesday, August 20, 13

  • investing tied to performance (milestones,

    tranches)

    Mileston

    e 1

    Mileston

    e 2$ $

    Tuesday, August 20, 13

  • 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

    Tuesday, August 20, 13

  • Summary:angel investors make

    money.

    Source: Growthink

    Tuesday, August 20, 13

  • Equity crowdfunding makes building a

    startup portfolio easier than ever

    Tuesday, August 20, 13

  • 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

    Tuesday, August 20, 13

  • OurCrowds value

    propositionCombining DIY of angel

    investing with professionalism of venture capital

    One-stop portfolio builder

    Tuesday, August 20, 13

  • Intro to Portfolio RESERVE

    Tuesday, August 20, 13

  • Portfolio RESERVE

    Automated portfolio building 1x funding Guaranteed allocation Opt-out feature Learn more (click here)

    Tuesday, August 20, 13

  • Any questions?

    Zack Miller, Head of Investor Communityemail: zack@ourcrowd.comVisit OurCrowd.com

    Tuesday, August 20, 13

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