This angel investing thing just might work! My “fund” is beating well over 90% of VC’s, according to AngelList data.
How My “Fund” Stacks Up Against the Competition
So far, my “fund” sits at 1.65x TVPI. This means that the total value of all my investments is 65% more than what I paid.
Here’s how that stacks up against other funds…
I made my first investment in June of 2021. That puts me in the 2021 Vintage.
For 2021 funds, the 90th percentile for TVPI is 1.58x. At 1.65x, I’m well above the threshold for the 90th percentile.
AngelList doesn’t break down returns any more finely than that. So, we don’t know if my exact percentile is 93rd, 95th, etc.
Cracking the the 90th Percentile
There are 35 investments in this “fund,” in total. That’s a typical number of names for an early stage venture fund. I closed “Fund 1” last month and now I’m investing out of “Fund 2.”
I still have about 15% of “Fund 1” remaining. That cash will go as secondary bets into the best companies, which should further increase my returns.
So far, only 2 companies in Fund 1 have gone out of business. That really surprises me. I figured most of them would be gone by now!
Avoiding those zeroes has helped the portfolio. But what has really moved the needle is the 3-4 most successful companies.
So far, the best among them is Micro1, which recently announced its Series A at a $500 million valuation.
Three other startups in “Fund 1” have crossed $10 million ARR, a key milestone. I’m hoping to get multiple unicorns out of this fund, and I think it’s achievable.
How I Picked My Investments
My method for picking startups is pretty simple.
I look for builder founders working on huge problems. If I see early signs that their product is catching on, I place a bet.
I look carefully at market size and traction. I also only invest in founding teams that can build a great product in-house.
To find the 35 startups in Fund 1, I probably looked at 5,000 or more. That’s what the job is: a relentless winnowing of companies to find the very best.
Going from Markups to Cold, Hard Cash
Having strong TVPI is nice, but we can’t eat markups. So far, all my returns are on paper.
That’s typical for a fund as new as mine. Most 4 year old funds have little or no actual cash returns, or DPI.
If you invest at pre-seed and seed like I do, it can take 10-15 years for your best companies to finally hit an IPO. So, I would not expect DPI at this point.
But eventually, those paper markups need to convert to cash. I’m watching carefully for opportunities to get liquidity sooner through secondary sales.
Wrap-Up
I have a long, long way to go with this portfolio. Good returns today don’t guarantee anything in the future.
But for now, this is good progress.
Even though I’m a small investor, I want to do the best job I can. That’s why I think of my investments as a “fund,” even though they’re not exactly Sequoia.
I want to learn the business using small sums of money. Later on, I’ll be able to deploy larger sums intelligently using what I learned.
You want to learn poker at the penny ante table. Once your game is strong, you’ll be ready to join the high rollers.
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