The headline above isn’t just meant to get your attention.
It’s meant to illustrate, with real figures, how the average historical returns from angel investing can turn a small nest egg into a vast sum.
Despite the seemingly unbelievable prospect of turning $50,000 into $50 million, these figures are based on the facts of an in-depth study.
We’ll link to the study below. But for now, understand this:
It’s the most comprehensive study of its kind. And it comes from a well-known non-profit that’s been around for nearly 50 years.
Did I believe it when I first read it?
An average annual return of 27% is, quite simply, astounding… and even beats Warren Buffet’s 24%.
No, I didn’t. The returns seemed too big.
But as I find more and more research that backs it up – and see professional investors use it as the foundation to invest in the real world – I’m coming around.
If you’re like me, I imagine you’ll have your doubts.
But I’ll quickly share with you what I know…
And maybe you’ll come around, too.
The study I’m referring to was conducted by the Kauffman Foundation, one of the largest private foundations in the U.S.
Based in Kansas City, Missouri, with assets of about $2 billion, the foundation’s vision is to “foster a society of economically independent individuals who are engaged citizens in their communities.”
Authored by Robert Wiltbank of Willamette University, and Warren Boeker of the University of Washington, this was quite literally the largest study ever conducted on the returns of angel investing.
To build its data set, the authors gathered results from 539 individual angels and 86 U.S. based angel investor groups.
These angels were involved with 1,130 companies. Some companies were successful, and were eventually acquired or taken public on the stock market. Others failed, and were closed down.
Here are the study’s main results:
An average annual return of 27% is, quite simply, astounding.
It beats the 8% historical average for corporate bonds, the 9% for stocks – and even beats Warren Buffet’s 24%.
At an average annual return of 27%, $50,000 turns into $50 million in 30 years.
This is no “get rich quick” scheme. But for $50 million, one might have patience.
For those who are intrigued and are thinking about getting started, let’s look at the #1 rule to remember – and look at an easy way to take the first step.
Whether you have millions of dollars to invest, or are starting with a few thousand, the most important thing to keep in mind is this:
You need to be diversified.
In the world of start-up investing, this means you need to build a portfolio of at least 25 to 50 different start-ups.
Ideally, you’d invest in several hundred over several years.
That might sound like a lot. But here’s an easy way to get started:
Buy a basket of early-stage companies that have been vetted by professionals.
Make sure the pros are putting their own money in, too.
And make sure they’re keeping an eye on the store.
Think of it as a “mutual fund” for start-ups.
You’ll pay a small fee, and will share about 20% of the profits with the pros, but we believe this is a smart way to get started.
If you’re interested in investing in such a fund, one is currently accepting money now on a high-quality platform called FundersClub.
Their minimum is $10,000.
For better or worse, this deal doesn’t really need any more money.
As of today, it’s still accepting funds, but it’s already 250% oversubscribed…
Probably by investors who read the Kauffman Study!
If you’re too late to get into this particular fund, don’t worry: we’ll let you know when a new one opens up.
Matthew Milnerfor The Daily Reckoning
Ed. Note: Yes, 27% annual returns are hard to beat. And when those returns are reinvested again and again, the money can really add up. That was, after all, at the heart of Warren Buffet’s oft-used “snowball” metaphor, which became the title of his biography. Any angel investor would be lucky to have a 27% track record. But we think you, as an individual investor, can do even better. Today’s issue of Tomorrow in Review gave readers an opportunity to find out how for themselves. And this is no fluke… Tomorrow in Review readers are given opportunities like this every day, and many of them have gone on to profit handsomely. You can too by signing up for the FREE Tomorrow in Review email edition, right here.
With so many competing definitions for various financial terms, it became clear that a measure of standardization was necessary to make sure everyone's operating under the same set of rules. Herewith, the true definitions of a few of the world's most essential financial terms, updated for their present day significance. Enjoy!
Matthew Milner is a Media & Technology executive. After selling a tech company he founded to Hearst in 2008, he joined Hearst Digital’s senior management team, first launching their brands online, then acting as their Entrepreneur-in-Residence. Matthew is founder of Crowdability, a free platform that aggregates investment opportunities in private-equity crowdfunding from across the web directly to you.
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