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Expected Returns to Stock Investments by Angel Investors in Groups


  • We thank the Ewing Marion Kauffman Foundation for providing the data and Rob Wiltbank for help clarifying some of the data's features. We received helpful comments from participants in sessions at Ewing Marion Kauffman Foundation and Federal Reserve Bank of Cleveland Conferences on Entrepreneurial Finance in Kansas City and Cleveland, the European Financial Management Association's Symposium on Entrepreneurial Finance and Venture Capital Markets, and conferences organised by the Association for Private Enterprise Education and the Society for Nonlinear Dynamics and Econometrics. We also thank participants in seminars at the College of Charleston, Ohio University, the University of North Carolina Charlotte and the University of Nevada at Las Vegas for helpful comments. Stephen M. Miller, Bruce Mizrach and Paul Thistle provided helpful comments. We thank the anonymous referee and the editor for helpful comments which improved the paper. DeGennaro thanks the College of Business at the University of Tennessee and the University's Scholarly Activities Research Incentive Fund for support. Dwyer thanks the Federal Reserve Bank of Atlanta for research support and the Spanish Ministry of Education and Culture for support of projects SEJ2007–67448/ECON and ECO2010–17158. Any errors are our responsibility. The views expressed here are ours and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.


Previous research calculates realised internal rates of return on angel investments but does not estimate expected returns. We present the first estimates of expected returns on angel investments by applying a consistent statistical framework to a new data set. Our sample spans 1972 to 2007 with 419 exited investments. Our results suggest that expected returns on stock for angel investors in groups are about 70% per year in excess of the riskfree rate. These expected returns have a large variance and are heavily skewed, with many losses and occasional extraordinarily high returns.