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

7/30/2019 The 1st rule in startup investing:: How investors lower risk and boost returns in early stage companiesr

1/32

The 1st Rule in Startup Investing:How investors lower risk & boost returns in early stage companies

Other methods professional investors use tode-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


2/32

Zack Miller, OurCrowdHead of Investor Community

Meet OurCrowds Team

David Stark, OurCrowdInvestment Associate



3/32

Investors now have access to startups



4/32

Theangelscometh

Capital raised in Israel



5/32

Butinvesting in

startups isrisky

business...



6/32

52% of startupinvestmentsreturns


7/32

So, where does riskcome from?



8/32

systemic risk: rising tides float/sinkall boats

industry risk: just bad bets (likenanotech, solar)

geographic risk: emerging marketsare hot...until theyre not.

execution risk: company just doesntpull it off



9/32

thats why returns compensate investorsfor risk



10/32

Angel investing returns



11/32


12/32

optimizing investing for given risk



13/32

Harry Markowitz



14/32

Efficient frontier

CAPM Modern Portfolio

Theory

Diversification in finance literature



15/32

Building startupportfolios



16/32

Where to find opportunities: See ourlast webinar, Finding the Next $billionopportunity (Source)

http://blog.ourcrowd.com/index.php/2013/07/31/webinar-finding-the-next-waze-an-insider-view-of-startup-investing-and-due-diligence/http://blog.ourcrowd.com/index.php/2013/07/31/webinar-finding-the-next-waze-an-insider-view-of-startup-investing-and-due-diligence/http://blog.ourcrowd.com/index.php/2013/07/31/webinar-finding-the-next-waze-an-insider-view-of-startup-investing-and-due-diligence/


17/32

Parameters:

Number of investments: At least 6

Open questions: does an investor need todiversify across industries, maturity/

experience levels?

Equal weight vs Overweight (RSP vs SPY)



18/32

52% of startup investments

returns


19/32

Interestingly, less than

40% of startup portfoliosreturned


20/32

Other ways to de-risk



21/32

3 things appear to

boost returns1. 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

http://sites.kauffman.org/pdf/angel_groups_111207.pdfhttp://sites.kauffman.org/pdf/angel_groups_111207.pdf


22/32

structuring aninvestment



23/32

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



24/32

investing tied to

performance (milestones,tranches)

Milest

one1

Milest

one2$ $



25/32

co-investors

Source: Harvard, Economist

Some data

Co-workers: 60% more likely to invest, but returns -18%

Same ethnicity: 20% more likely to invest, but -25% to IPOinvestment

Based on ability: founder with a degree from top universityadds 9% to likelihood of IPO

http://www.economist.com/node/21557730http://www.economist.com/node/21557730


26/32

Summary:

angel investors makemoney.

Source: Growthink

http://www.growthink.com/HistoricalReturnofAngelInvestingAssetClass.pdfhttp://www.growthink.com/HistoricalReturnofAngelInvestingAssetClass.pdf


27/32

Equity crowdfunding

makes building astartup portfolio easier

than ever



28/32

Value ofcrowdfunding

access to deals previously high minimums

made portfolio building tooexpens i ve , g i v ing ange linvesting a bad rap

new low minimums turnsevery angel investor into aportfolio manager



29/32

OurCrowdsvalue

propositionCombining DIY of angelinvesting with professionalism of

venture capital

One-stop portfolio builder



30/32

Intro to Portfolio RESERVE



31/32

Portfolio RESERVE

Automated portfolio building

1x funding Guaranteed allocation

Opt-out feature

Learn more (click here)

https://www.ourcrowd.com/Portfolio_Reserve?Source=webinarhttps://www.ourcrowd.com/Portfolio_Reserve?Source=webinar


32/32

Any questions?

Zack Miller, Head of Investor Community

email: [email protected] OurCrowd.com
http://www.ourcrowd.com/?source=webinarhttp://www.ourcrowd.com/?source=webinarmailto:[email protected]:[email protected]

Documents

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