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Tracking Angels Returns - the right benchmark

Paul Clark
Paul Clark
Last updated: January 17, 2024
Venture south fallback

Continue the “tracking angel returnsseries… Another objection might be that the S&P 500’s performance over the last 15 years is not the appropriate benchmark against which to judge angels' returns. Fair enough – I just used that for simplicity. Here are some alternatives.

Different time frames: The original Wiltbank study was over the 20 years to 2007. The same time period for the S&P (1987-2007) has a total annualized return (including reinvestment of dividends) of 6.3%. Not much difference vs the 7% in the original.

Different index: S&P 500 obviously has different companies (the largest of the large caps – you need a $5.3bn market cap to be in the S&P 500 today), so it’s not obvious to compare with angel investment returns. Fair enough. Choose any public index over the similar period, and I’ll wager it looks pretty similar. The S&P 600 small caps, for example has a 10 year return of 6%; the NASDAQ returned 0-11% IRR depending on your timing since 2000 (ignoring dividends: I couldn’t easily find NASDAQ total returns, but assuming dividends don’t add more to NASDAQ returns than the S&P I think we’re on solid ground…).

Different timing: If you compared the return from when the S&P bottomed at 676.53 in March 2009 to its current value, you’d have enjoyed annualized returns of closer to 19% including dividends. The NASDAQ enjoyed an IRR of 11% from the trough in September 2002. Well, yes, if you can consistently “time” the market you can outperform the averages – but if you can do that you’re in a very small minority…

Correlation? We don’t have enough granularity to determine whether angel investment returns follow those from public markets – whether timing matters. Perhaps they do and therefore if you timed your angel investments well you could beat the “22% market index”? The general belief is that angel returns are not correlated with the economy or public market indexes, and that timing doesn’t matter in angel investing.

So here’s a request: can anyone supply a public market benchmark that makes the returns look poor?