A new study on the profitability of angel investing, made by the Finnish Business Angel Network (FiBAN) together with Ruben Moring (Åbo Akademi University), is the first broad study on the national angel activity in Finland. The exit data is relied on self-reporting, which is very challenging to gather. The survey was sent to almost 600 angel members of FiBAN and of which 40 responses were received. The responses consisted mainly business angels who actively invest in startups as their full-time profession. This is the largest study made about the angel exits in the Nordics, and so far, only two similar studies have been made before; United States (Wiltbank, 2007) and the United Kingdom (Mason&Harrison, 2002). Therefore, the new Finnish study is internationally remarkable.
For professional angel investors, the role of exits is vital and maintains interest towards startup investing. The study covered 126 business angel exits measuring the Internal Rate of Return (IRR) that observes the profitability of the whole investment lifecycle. The key results of the study show that the pooled IRR is 25% and overall realization multiple is 3.75. This shows that the IRR of the exits of professional business angels in Finland is excellent and in line with international studies. However, more than a half (54%) of the exits that were reported during the survey were unprofitable. Also these results are in line with the general risk level of the business angels.
The survey included only one IPO and no unicorn exits. Therefore, the results show that also smaller exits can be quite successful. The average holding period in Finland was 5,5 years, which is longer compared to the international level. Finnish business angels have also been very active with their portfolio companies; on average they have used 28 hours in a month for a company.
“This survey is an excellent initiative to raise understanding on the profitability on angel investing, and compare the activity internationally. By these means, the results seem excellent. Even if an entrepreneur is not expected to actively think of the exit possibilities, for many investors this is a matter that needs to be planned.” comments Torsti Tenhunen, Chairman of FiBAN.
FiBAN will continue making and developing IRR survey also in the future, aiming to make Finland one of the leading countries comparing startup data to business angel activities.
Suggestions on how to optimize the probability of positive startup exits
A business angel can enhance profitability of an exit for example in the following ways:
Presentation on the Profitability of Business Angel Investment
See the presentation of The Profitability of Business Angel Investment in SlideShare here.
Claes Mikko Nilsen
NordicBAN, Managing Director & FiBAN, co-founder
claes.mikko(at)nordicban.net p. +358 50 491 3001
European business angel network (EBAN), Vice-President
FiBAN, Managing Director
reidar.wasenius(at)fiban.org p. +358 400 432100
FiBAN, Chairman of the Board
rubenmoring(at)gmail.com p. +358 50 436 1470
FiBAN's news about startup investing.