Time and cash
Time to exit
How long angel money is actually locked up, why the period has lengthened, and what that does to the return you should require.
Angel investments take a long time to resolve. Companies that fail take two to four years to do so; companies that succeed take eight to twelve, and sometimes longer. Money invested today is unlikely to be money you see again before the middle of the next decade.
The holding period has lengthened over the last two decades as private capital has become abundant. Companies that would once have listed at a few hundred million now raise privately for years longer, which is excellent for late-stage investors and postpones liquidity for everybody who came earlier.
The consequence for an angel is straightforward and under-appreciated: a multiple achieved over twelve years is a much less impressive annual return than the same multiple over six, and the required multiple to justify the risk rises with every year of delay.
What the multiple is worth over time
Converting a multiple into an annual rate is the calculation that makes holding periods concrete. A 5× return sounds excellent in isolation; over twelve years it compounds at about 14% a year, which is good but not extraordinary given the risk of total loss and the absence of liquidity.
The same 5× over six years compounds at about 31%, which is a genuinely exceptional result. The multiple did not change; the time did.
This is why exit timing matters to portfolio construction and not merely to individual positions. A portfolio whose winners resolve in year seven is a substantially better portfolio than one whose winners resolve in year thirteen, at the same multiples.
| Multiple | Over 5 years | Over 8 years | Over 12 years |
|---|---|---|---|
| 2× | about 15% | about 9% | about 6% |
| 3× | about 25% | about 15% | about 10% |
| 5× | about 38% | about 22% | about 14% |
| 10× | about 58% | about 33% | about 21% |
| 20× | about 82% | about 45% | about 28% |
Compound annual growth rates, calculated directly from the multiple and the period.
Why it has got longer
Abundant late-stage private capital is the main cause. A company that can raise at increasing prices without the disclosure, scrutiny and quarterly pressure of public markets has little reason to list, and the investors funding those rounds are content to wait.
Regulatory and market changes have raised the practical threshold for a public listing, so companies list later and larger. And acquirers have become more cautious about large acquisitions in some sectors, which removes the other route.
None of this is likely to reverse quickly, so an angel investing today should plan on the longer end of the range rather than hoping for the shorter one.
What to do about it
Require a higher multiple. If the holding period is twelve years, the multiple needed to justify the risk is substantially larger than most angels assume when they agree an entry price. Doing that arithmetic before agreeing a cap is the single practical response.
Take partial liquidity when it is offered. Secondary opportunities in later rounds allow you to realise part of a position without taking a view on the ending, and an angel eight years into a position has usually earned the right to bank something.
And plan your own liquidity around the reality. Money committed to angel investing should be money with no claim on it for a decade or more, because that is genuinely how long it will be gone.
In short
What to take away
- Plan on eight to twelve years for a successful outcome, and longer for the largest ones.
- Convert every target multiple into an annual rate before agreeing an entry price.
- Take partial secondary liquidity when it is offered — half sold and half held needs no view.
- Commit only money that has no claim on it for a decade.
From the decoder