Dear SaaStr: Why Do Angels Invest Even if Most Of Them Fail? And is a 10x Return Even Enough?
You’re right, 10x isn’t enough. True angels invest so early, maybe only 2 out of 50 make any real money. Sometimes just 1 (or 0).
If it’s just 1 Big Winner out of 50 angel investments, to even just double your money, that winner has to do 100x.
So most successful angels in tech are seeking startups that can 100x their money.
That’s really 200x from the price they pay, because typically over the lifetime of an investment, total dilution is about 50%.
So if an angel invests at a $6m valuation, that’s a $1B exit to hit 100x net of dilution.
That’s why everyone is hunting true unicorns and decacorns.
The math doesn’t work otherwise.
It’s tough math. It really is. Especially for angels, who don’t get fees or salaries along the way.
And you can also see why many angels that are in it to make money (for some, it is more a hobby), have trouble investing as the valuation climbs. It just gets harder and harder to see that 100x.
(image from here)
