https://www.fiban.org/news/the-profitability-of-business-angel-investment

1. THE PROFITABLITY OF
BUSINESS ANGEL
INVESTMENT
A new study on the Internal Rate of Return (IRR)
analyzing 126 business angel exits in Finland

2. Content
1. Definitions (Business Angel, Exit and IRR)
2. Background
3. Research structure
4. Results (Investments, Exit, Profits, and Valuation)
5. Comparison (Finland vs. US & UK)
6. Exit portfolio example – Business angel Riku Asikainen
7. Conclusions and next steps
8. Suggestions how to optimize the profitability of positive startup exits

3. 1. Definitions
Business Angel
A private person investing his/her time, networks, and personal wealth in
unlisted potential growth companies.
Exits
A business angel makes most of the profits when selling his/her ownership in
the startup company, so called ”exit”.
IRR (Internal Rate of Return)
IRR is a metric used to measure the profitability of potential investments
observing the effect of the whole investment life cycle.

4. 2. Background
FiBAN has together with Ruben Moringin (Åbo Akademi) have made an
extensive research about the profitability of startup investing done by Finnish
business angels.
The questionnaire was answered mainly by active Finnish business angels
who make angel investments full-time. The role of exits are significant for full-
time angels and most of the profits are made through selling the temporary
ownership in a startup.
There are two previous studies about the topic:
Mason&Harrison, UK (2002) ja Wiltbank, USA (2007).

5. 3. The Research
The questionnaire was sent to the whole FiBAN
angel network (582). Angels who had reported exits
made in previous questionnaires were separately
noted.
The respondents were all Finnish, mainly active full-
time business angels so the survey results do not
represent the less active business angels.
The answers were gathered during spring and
summer 2017. It is very challenging to gather data
about exits as the results are reported voluntarily by
individual investors.
Questionnaire sent to 582
Reactions 121
Answers 40
Reported exits 126

6. 4. Results – Profitability (IRR)
The overall return multiple 3,75X
was significant.
126 exits is the largest study so far
made about the angel exits in the
Nordics.
Overall realization multiple
(X total sample)
3,75X
Pooled IRR (Total sample
since inception)
25%

7. 4. Results – Investment activity
Investors had approximately
three exits.
Most of the exits were made
from startups that had received
the investment after year 2000.
The average holding period
was over five years.
Exits per investor (average) 3,13
Average holding period for
successful investments
5,55 years
(median 4,75)
Amount of investments made after
year 2000
92%
Observation period 30,8 years

8. 4. Results - Activity
The angels work very
actively with their
portfolio companies (20h
median) compare to the
median ownership 8,5%.
79% of the investments
were done in a syndicate
(group investment).
Average ownership of portfolio
company at exit
15% (median 8,5%)
Average amount of due diligence
conducted before investing per month
37h (median 20h)
Average monthly interaction with the
company per month
28h* (median 10h)
% of investments made in familiar
industries (relevant work experience)
62%
% of investments made as syndicates 79%
*Observe: holding period 5,5 years* 10 hours *12 months = 660 hours of interaction with the startup (median)

9. 4. Results – Investments & Profits
Investments
Total aggregated amount
invested
11,4 MEUR
Average size of unique
investment (sample)
90.000€
(50.000€ mediaani)
Share of portfolios resulting
in partial loss or total loss
44,44%
Profits
Total aggregated returned
at exit
41 MEUR
Average gross amount
received at exit
326.000€
4 500 €
median
Total aggregated amount
of dividends received
1,6MEUR
12.400€
Keskiarvo
Share of investments
paying dividends
10,32%
The typical scale of the investments were 40-120.000€,
some of the investments passed half a million euros.
The average simple valuation of portfolio company's total
equity at successful exits was 10 MEUR (median 2 MEUR)

10. 4. Results – Exit forms
Bankruptcy 37%
Trade Sale 26%
Sold to VC firm 10%
Sold to other shareholders 9%
Voluntary Liquidation 7%
Sold to other investors 5%
Management Buy Outs (MBO) 2%
Merger 2%
Buyback of shares 1%
Initial Public Offering (IPO) 1%

11. 4. Results – Co-Investments
Approximately 80%
of the investments
were made together
with other investors,
most of the done in
an angel group.
Investments with other investors
Co-investments with other business angels 47%
Co-investment with other business angels and VC
firm
21%
Co-investments with other investors 10%
No syndication 22%

12. 4. Results – The role of angels in the company
A business angel often
takes a role in the board
of the company.
Anels rarely takes an
active role in the executive
management.
Member of the board 34%
Chairman of the board 23%
Advisors 21%
Executive Management 5%
None 16%

13. 5. Comparison
The returns of full-time
Finnish business angels
are in line with international
exit results.
Finnish angels have a
longer holding period, but
this is compensated with
larger return multiples.
UK* USA** Finland
Internal rate of Return
(IRR)
22 % 27 % 25%
Return on Investment
(ROI)
2.2X / 4v. 2.6X / 3.5v. 3,75X / 5.5v
% of the investments
made/
% profits
9 % /
80 %
7 % /
75 %
10% /
72 %
Return less than <1X 56% 52% 54%
*UK Mason&Harison (2002)
** Wiltbank&Boeker (2007)

14. 6. Exit Example
Business Angel Riku Asikainen
Background as an entrepreneur and the sold
the company he founded. Currently an
active business angel, co-founder of FiBAN
of which he was the chairman of the board
years 2013 and 2014.
Worked as the head coach of accelerator
StartupSauna and currently the Vice
President of the European Business Angel
Network (EBAN).
Investment background
Investments 42
Startup exits 18
Average X return 7,5
Bankruptcy 7 ( /18)
TOP3 best exit returns > 40 X

15. 7. Conclusions and Future Research
The profitability of full-time active Finnish business
angels is excellent but it is important to observe that
54% of all the investments fail completely or partly.
The exit profitability is excellent for full-time investors.
The part-time and hobby investors need to be educated
and trained to observe exit strategy. Angel exits are
crucial to maintain startup investing interest.
The exits included one stock listing and there were no
”unicorn” exits included. It can be concluded that also
smaller exits are enough to build a positive startup
portfolio. The holding period of the investments are
longer in Finland.
Research next steps
Finland has exceptionally well
developed business related data
and there are wide amount
information available to be linked
with angel investing.
FiBAN will continue to study angel
investing and share relevant data to
increase the understanding of
early-stage startup investing.

16. 8. Suggestions how to optimize the profitability of
positive startup exits
1. Decentralize investments to several companies and co-
invest together with other angel investors
2. Be prepared for a long holding period
3. Evaluate potential exit channels already while
making the investment
4. Define yourself a maximum limit for investments
5. Prepare yourself for working hard in the investment
portfolio company

17. Additional information
Claes Mikko Nilsen
claes.mikko@nordicban.net
+358 50 491 3001
Reidar Wasenius
reidar.wasenius@fiban.org
+358 400 432 100
Ruben Moring
rubenmoring@gmail.com
+358 50 436 1470
Riku Asikainen
riku.asikainen@riq.fi
Torsti Tenhunen
torsti.tenhunen@fiban.org