I've gotten more serious about angel investing lately, and I'm struggling with how to value prospective angel investments.
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Let's say my target is to get 30%/yr on my angel investments. If my investments have 5 year time horizons (on average), and 10% hit the high mark, that 1 out of 10 that hits needs to have a 37x exit event (on my share). If I was more successful at picking winners, say 2 out of 10, that drops in half to 19x exit events.
By the above logic, which I'm starting to believe, I should only consider investments that have a realistic opportunity, albeit unlikely, to return 20x on my investment. Should I have such a cutoff?
As my share in the company goes up, it gets more likely that their high exit outcome will return the required amount. I probably won't put in much more money per deal, so a higher share for me means getting in early and/or being really hands-on.
