SlideShare a Scribd company logo
1 of 3
Download to read offline
6    The McKinsey Quarterly 2004 Number 1




         A halo
    for angel
           investors
                                                                                      Kevin Curry

                 Steven D. Carden and
                 Olive Darragh



    A portfolio of investments in socially responsible companies can generate
    returns similar to those of the S&P 500.


    Socially responsible businesses                 Since Investors’ Circle doesn’t manage
    sacrifice financial returns to pursue social    the investments centrally, its members
    or environmental objectives; that much          were keen to know whether the aggregate
    is known. Just how much of a trade-off they     returns from such a portfolio of companies
    make has always been unclear, however,          were competitive with those from other
    and evidence from the capital markets is        angel-investment opportunities. In a survey,
    inconclusive. A recent study has produced       77 percent of the group’s members said
    some surprising results: over the ten-year      that they expected returns of at least
    period we examined, a portfolio of invest-      10 percent, but the majority would accept
    ments defined as socially responsible           a “social discount” in exchange for social or
    generated returns of 8 to 14 percent. That is   environmental benefits derived from
    lower than the rate typically earned            a company’s business.
    by “angel” investors—wealthy people
    who make direct equity investments in           To determine how large a discount, we
    entrepreneurial ventures, usually at an         gathered information on 110 of the 128
    early stage—but comparable to capital-          companies financed since the organization’s
    market returns.                                 founding, in 1992. We then used the data
                                                    to build a portfolio that covered the ten-year
    We studied investments made by mem-             period from 1992 until the end of 2001.
    bers of Investors’ Circle, a US-based           Instead of analyzing the actual returns
    network of angel investors who put their        of individual investors, we used standard
    money into companies they view as socially      investment and current-valuation data.2
    responsible.1 Representative investments        Our portfolio simulated investments of
    include Earth’s Best, an organic baby-food      $72 million—the aggregate amount that the
    manufacturer recently acquired by HJ Heinz,     organization’s members had invested—
    and Sonic Innovations, a manufacturer of        in 95 operating companies as well as 15
    low-cost hearing aids. The latter company       venture capital funds, all of which had
    went public in 2000.                            social missions as part of their charters.3

                                                    Next, we tested our portfolio under two
                                                    investment strategies. The tests for the
                                                    first—buy and hold—looked at the perfor-
                                                    mance of a single initial investment in each
�� ����                                                                                               Current Research       7
������� ��������� ���
������� � �� �


 ������� �
                                                                         company in the portfolio and assumed that
 ���� ��� ����
                                                                         these investments were being held for
 ������������ �� ������� ��� �������� ����������� ��� �������� ����� �   the long term. The holdings were valued
                                                                         at the IPO price of the company (if it
                                                                         went public), at its acquisition price, or at
                                         ��          ��                  its annual revenue (if it was still privately
           �������� �������     ��                                       held). The tests for the second investment
                                                                         strategy, called six-month liquidation,
                                                     ��
                                         ��                              modeled the initial investments plus partici-
                    ���� ��
                                ��
           �������� �������                                              pation in each additional funding round
                                                     ��                  before an initial public offering or acquisition,
                  ��������      ��       ��
                                                                         as well as an exit six months following
                                                                         the IPO or acquisition.4 The buy-and-hold
                              ������ ���������� �������
                                     �������    �������                  and the six-month-liquidation strategies
                                                                         generated returns of 8 and 14 percent,
                                                                         respectively. Two things explain the perfor-
 ������ ���� ����� ���������� �� ������ �������� �� ����
  ������������� ���������� �� �������� �������� ��� �������              mance advantage of the latter approach.
 �������� ���� ����������� �� ��� �� ��� ��������� �������� �����
                                                                         First, since investors can participate in
�� ���� ������������� �� �����
 �������� ��
 ������� ����� �� ����� ��� ������� �� ��������� ��� �� �����            subsequent rounds of funding, their initial
������� ��������� ���
 ��� ��� ����� �� ������ ���� �������� ������� ������� �������������
 ������� �� �������� ���������� ����� �������� ��������
                                                                         equity position isn’t significantly diluted.
������� � �� �                                                           Also, the IPO or acquisition allows them to
                                                                         realize higher returns than the natural
                                                                         rate of appreciation generated through the
 ������� �
                                                                         buy-and-hold strategy.
 ����� ���� ���� ����

 ������� ��� �������� ����������� ��� �������� ����� �
                                                                         As with typical angel or venture capital
                                                                         portfolios, it is very hard to pick individual
                                                                         winners, so a good deal of value was
                   ������� �������                             ��        derived from the portfolio effect of investing
               ����������     �������           ��                       in a range of companies that delivered a
                                                                         range of returns. About a third of the com-
        ������ ������ ������ ����              ��
                                                                         panies went bankrupt and about a third
                         ��� ���              ��                         delivered positive returns—results compar-
                                                                         able to those of a venture capital fund
                                                                         (Exhibit 1). The subset of 14 companies that
 �������� ��� ������� ����������� ��������� ������� ��� ������������     were sold or went public drove the overall
  �������� � ��� ������� ���� ����������� �� ��� �� ��� ���������
  �������� ����� �������� �� ������������� �� �����                      returns of our portfolio. Its distinguishing
  ������� ������������ �������� � ������� ������� ����������             feature was the relatively high number of
  �������� ��������
                                                                         companies that were acquired (9 percent)
                                                                         and the relatively low number that went
                                                                         public (6 percent). This depressed company
                                                                         values at the time of divestiture below the
                                                                         levels that venture capitalists usually enjoy.

                                                                         Although our portfolio’s performance fell
                                                                         short of typical venture capitalists’ returns
                                                                         during the same period, it was comparable
                                                                         to the returns of the Domini Social Equity
                                                                         Fund, which describes itself as “the oldest
                                                                         and largest socially and environmentally
                                                                         screened index fund, and of the S&P 500
                                                                                               ”
8    The McKinsey Quarterly 2004 Number 1




    (Exhibit 2, on the previous page). Returns         1
                                                         Unlike venture capital or private equity firms, which
    for angel investments are difficult to               raise money from individuals and institutions
    quantify because of the individual nature of         and then invest directly in portfolios of companies,
    the investment activity, but interviews              Investors’ Circle serves as a matchmaker for
                                                         individual investors and promising companies with
    with industry experts suggested that angels          social missions.
    generally expect returns better than               2
                                                         Several factors influenced this approach. For one
    capital markets offer but worse than those           thing, we wanted to focus on evaluating companies
                                                         and not on the skill of investors. Moreover, the
    of venture capitalists. Most angel investors         results could have been skewed by a handful of big
    never achieve venture capital returns,               investments, and the availability of data on specific
    because angels have lower levels of                  investment terms was a challenge.
                                                       3
                                                         Our data covered 142 people who made 444
    diversification and not enough capital to            investments, with an average initial investment
    participate in follow-on rounds, so their            of $174,000 and an average of $114,000 in
    equity is diluted.                                   follow-on investments. The data represent the average
                                                         investments modeled rather than the specific
                                                         investments these individuals actually made.
    The track record of the 110 Investors’             4
                                                         After an IPO, during what is called the “lockup
    Circle companies we studied is a promising           period,” employees and other early investors usually
                                                         can’t exercise their stock options.
    indication that social-purpose ventures
    can generate financial returns that meet
    investors’ expectations. Although our
    study is too small to make sweeping claims
    about early-stage social investing, it
    does present a methodology and a set
    of results that can aid others looking
    for both a financial and a social return on
    their investments.
                       Q
    Steven Carden is a consultant in McKinsey’s
    New York office, and Olive Darragh is a director
    in the Boston office. Copyright © 2004 McKinsey
    & Company. All rights reserved.

More Related Content

What's hot

Article 4 The Recovery Equation Australia
Article 4 The Recovery Equation AustraliaArticle 4 The Recovery Equation Australia
Article 4 The Recovery Equation AustraliaDave Francis
 
GVFM Retirement Plan Services
GVFM Retirement Plan ServicesGVFM Retirement Plan Services
GVFM Retirement Plan Servicesjvistica
 
The green light_partnership-i_ds
The green light_partnership-i_dsThe green light_partnership-i_ds
The green light_partnership-i_dseurekabuild2
 
RiskMetrics Policy Updates 20091208
RiskMetrics Policy Updates 20091208RiskMetrics Policy Updates 20091208
RiskMetrics Policy Updates 20091208Edward Hauder
 
Hhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTING
Hhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTINGHhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTING
Hhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTINGaaaala
 
Ian R. Stuart - Career History, Accomplishments, Leadership
Ian R. Stuart - Career History, Accomplishments, LeadershipIan R. Stuart - Career History, Accomplishments, Leadership
Ian R. Stuart - Career History, Accomplishments, LeadershipIanRStuart
 
Sunlife The Grand Slam
Sunlife The Grand SlamSunlife The Grand Slam
Sunlife The Grand SlamRonaldFilian
 
Definition of takeover
Definition of takeoverDefinition of takeover
Definition of takeoverlegalcontents
 
Ppt on m&a final ppt
Ppt on m&a final pptPpt on m&a final ppt
Ppt on m&a final pptdarshanudeshi
 
Dividend policies
Dividend policiesDividend policies
Dividend policiesanushavivek
 
Why financial planning
Why financial planningWhy financial planning
Why financial planningKush Sonigara
 

What's hot (17)

Cf report
Cf reportCf report
Cf report
 
2013-03-05 Accounting Issues for NPOs
2013-03-05 Accounting Issues for NPOs2013-03-05 Accounting Issues for NPOs
2013-03-05 Accounting Issues for NPOs
 
Article 4 The Recovery Equation Australia
Article 4 The Recovery Equation AustraliaArticle 4 The Recovery Equation Australia
Article 4 The Recovery Equation Australia
 
Chap029 merger
Chap029 mergerChap029 merger
Chap029 merger
 
GVFM Retirement Plan Services
GVFM Retirement Plan ServicesGVFM Retirement Plan Services
GVFM Retirement Plan Services
 
The green light_partnership-i_ds
The green light_partnership-i_dsThe green light_partnership-i_ds
The green light_partnership-i_ds
 
RiskMetrics Policy Updates 20091208
RiskMetrics Policy Updates 20091208RiskMetrics Policy Updates 20091208
RiskMetrics Policy Updates 20091208
 
Hhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTING
Hhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTINGHhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTING
Hhtfa8e ch10 stud devry Accounting 212 FINANCIAL ACCOUNTING
 
Ian R. Stuart - Career History, Accomplishments, Leadership
Ian R. Stuart - Career History, Accomplishments, LeadershipIan R. Stuart - Career History, Accomplishments, Leadership
Ian R. Stuart - Career History, Accomplishments, Leadership
 
Guide Substantial E
Guide Substantial EGuide Substantial E
Guide Substantial E
 
Sunlife The Grand Slam
Sunlife The Grand SlamSunlife The Grand Slam
Sunlife The Grand Slam
 
Definition of takeover
Definition of takeoverDefinition of takeover
Definition of takeover
 
Mint 50 Best Funds
Mint 50 Best FundsMint 50 Best Funds
Mint 50 Best Funds
 
Determinants of[1]
Determinants of[1]Determinants of[1]
Determinants of[1]
 
Ppt on m&a final ppt
Ppt on m&a final pptPpt on m&a final ppt
Ppt on m&a final ppt
 
Dividend policies
Dividend policiesDividend policies
Dividend policies
 
Why financial planning
Why financial planningWhy financial planning
Why financial planning
 

Viewers also liked

Due diligencechecklist
Due diligencechecklistDue diligencechecklist
Due diligencechecklistJose Gonzalez
 
C51d57b1 41fb-4e56-8b88-b53b78e77997[1]
C51d57b1 41fb-4e56-8b88-b53b78e77997[1]C51d57b1 41fb-4e56-8b88-b53b78e77997[1]
C51d57b1 41fb-4e56-8b88-b53b78e77997[1]Jose Gonzalez
 
Guide to writing_a_killer_business_plan
Guide to writing_a_killer_business_planGuide to writing_a_killer_business_plan
Guide to writing_a_killer_business_planJose Gonzalez
 
Foundup manifesto and o!f manual v1.5 intro
Foundup manifesto and o!f manual v1.5 introFoundup manifesto and o!f manual v1.5 intro
Foundup manifesto and o!f manual v1.5 introJose Gonzalez
 
Why i believe in angels atlantic business magazine 01 09_0
Why i believe in angels   atlantic business magazine 01 09_0Why i believe in angels   atlantic business magazine 01 09_0
Why i believe in angels atlantic business magazine 01 09_0Jose Gonzalez
 

Viewers also liked (7)

Due diligencechecklist
Due diligencechecklistDue diligencechecklist
Due diligencechecklist
 
Fixurinnergame1.1
Fixurinnergame1.1Fixurinnergame1.1
Fixurinnergame1.1
 
C51d57b1 41fb-4e56-8b88-b53b78e77997[1]
C51d57b1 41fb-4e56-8b88-b53b78e77997[1]C51d57b1 41fb-4e56-8b88-b53b78e77997[1]
C51d57b1 41fb-4e56-8b88-b53b78e77997[1]
 
Guide to writing_a_killer_business_plan
Guide to writing_a_killer_business_planGuide to writing_a_killer_business_plan
Guide to writing_a_killer_business_plan
 
Foundup manifesto and o!f manual v1.5 intro
Foundup manifesto and o!f manual v1.5 introFoundup manifesto and o!f manual v1.5 intro
Foundup manifesto and o!f manual v1.5 intro
 
Reorockstar Ebook
Reorockstar EbookReorockstar Ebook
Reorockstar Ebook
 
Why i believe in angels atlantic business magazine 01 09_0
Why i believe in angels   atlantic business magazine 01 09_0Why i believe in angels   atlantic business magazine 01 09_0
Why i believe in angels atlantic business magazine 01 09_0
 

Similar to A%20 halo

Are you preparing for PE fund Accounting interview_.pdf
Are you preparing for PE fund Accounting interview_.pdfAre you preparing for PE fund Accounting interview_.pdf
Are you preparing for PE fund Accounting interview_.pdfrajendra168342
 
venture capital.pptx
venture capital.pptxventure capital.pptx
venture capital.pptxsuchita74
 
Dividend Policy of Sensex Companies using Walter's Model
Dividend Policy of Sensex Companies using Walter's ModelDividend Policy of Sensex Companies using Walter's Model
Dividend Policy of Sensex Companies using Walter's ModelKandarp Desai
 
Royalties Presentation: Investor View
Royalties Presentation: Investor ViewRoyalties Presentation: Investor View
Royalties Presentation: Investor ViewMichael North
 
Factoring Sustainability into IPO Planning
Factoring Sustainability into IPO Planning Factoring Sustainability into IPO Planning
Factoring Sustainability into IPO Planning Sustainable Brands
 
Introduction to private equity & venture capitalist fund
Introduction to private equity & venture capitalist fundIntroduction to private equity & venture capitalist fund
Introduction to private equity & venture capitalist fundManish Poddar
 
Workshop 2, process and documentation
Workshop 2, process and documentationWorkshop 2, process and documentation
Workshop 2, process and documentationdaniel.heery
 
Transparency in the Private Equity Market
Transparency in the Private Equity MarketTransparency in the Private Equity Market
Transparency in the Private Equity Marketoghani
 
CFA LEVEL I - Alternative Investments (Reading 3).pptx
CFA LEVEL I - Alternative Investments (Reading 3).pptxCFA LEVEL I - Alternative Investments (Reading 3).pptx
CFA LEVEL I - Alternative Investments (Reading 3).pptxsakshambhatia8368
 
Chapter 7.Long-Term Financing-Equity
Chapter 7.Long-Term Financing-EquityChapter 7.Long-Term Financing-Equity
Chapter 7.Long-Term Financing-EquityZahraMirzayeva
 
Private Equity growth investing model for Nestle India Limited
Private Equity growth investing model for Nestle India LimitedPrivate Equity growth investing model for Nestle India Limited
Private Equity growth investing model for Nestle India LimitedMiraj Patel
 
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011Hedge Funds: A Look Back and A Look Ahead - Dec. 2011
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011RobertWBaird
 
Private Equity and Venture Capital 2
Private Equity and Venture Capital 2Private Equity and Venture Capital 2
Private Equity and Venture Capital 2Alexey Milevskiy
 
Q1 2012 Perspective Slides
Q1 2012 Perspective SlidesQ1 2012 Perspective Slides
Q1 2012 Perspective Slideskeatingcapital
 

Similar to A%20 halo (20)

Are you preparing for PE fund Accounting interview_.pdf
Are you preparing for PE fund Accounting interview_.pdfAre you preparing for PE fund Accounting interview_.pdf
Are you preparing for PE fund Accounting interview_.pdf
 
venture capital.pptx
venture capital.pptxventure capital.pptx
venture capital.pptx
 
Dividend Policy of Sensex Companies using Walter's Model
Dividend Policy of Sensex Companies using Walter's ModelDividend Policy of Sensex Companies using Walter's Model
Dividend Policy of Sensex Companies using Walter's Model
 
Royalties Presentation: Investor View
Royalties Presentation: Investor ViewRoyalties Presentation: Investor View
Royalties Presentation: Investor View
 
Factoring Sustainability into IPO Planning
Factoring Sustainability into IPO Planning Factoring Sustainability into IPO Planning
Factoring Sustainability into IPO Planning
 
Using the Private Cost of Capital Model
Using the Private Cost of Capital ModelUsing the Private Cost of Capital Model
Using the Private Cost of Capital Model
 
Introduction to private equity & venture capitalist fund
Introduction to private equity & venture capitalist fundIntroduction to private equity & venture capitalist fund
Introduction to private equity & venture capitalist fund
 
Workshop 2, process and documentation
Workshop 2, process and documentationWorkshop 2, process and documentation
Workshop 2, process and documentation
 
Transparency in the Private Equity Market
Transparency in the Private Equity MarketTransparency in the Private Equity Market
Transparency in the Private Equity Market
 
CFA LEVEL I - Alternative Investments (Reading 3).pptx
CFA LEVEL I - Alternative Investments (Reading 3).pptxCFA LEVEL I - Alternative Investments (Reading 3).pptx
CFA LEVEL I - Alternative Investments (Reading 3).pptx
 
Eban impactinvesting final200711_light[1]
Eban impactinvesting final200711_light[1]Eban impactinvesting final200711_light[1]
Eban impactinvesting final200711_light[1]
 
Chapter 7.Long-Term Financing-Equity
Chapter 7.Long-Term Financing-EquityChapter 7.Long-Term Financing-Equity
Chapter 7.Long-Term Financing-Equity
 
Transferring Your Company To Key Employees
Transferring Your Company To Key EmployeesTransferring Your Company To Key Employees
Transferring Your Company To Key Employees
 
Private equity
Private equityPrivate equity
Private equity
 
Private Equity growth investing model for Nestle India Limited
Private Equity growth investing model for Nestle India LimitedPrivate Equity growth investing model for Nestle India Limited
Private Equity growth investing model for Nestle India Limited
 
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011Hedge Funds: A Look Back and A Look Ahead - Dec. 2011
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011
 
Private Equity and Venture Capital 2
Private Equity and Venture Capital 2Private Equity and Venture Capital 2
Private Equity and Venture Capital 2
 
Venture capital presentation
Venture capital presentationVenture capital presentation
Venture capital presentation
 
Buy Back Of Shares
Buy Back Of SharesBuy Back Of Shares
Buy Back Of Shares
 
Q1 2012 Perspective Slides
Q1 2012 Perspective SlidesQ1 2012 Perspective Slides
Q1 2012 Perspective Slides
 

More from Jose Gonzalez

Userguide fundingapplication-forgroups-a1
Userguide fundingapplication-forgroups-a1Userguide fundingapplication-forgroups-a1
Userguide fundingapplication-forgroups-a1Jose Gonzalez
 
Thefundedsick 1226521688868759-8
Thefundedsick 1226521688868759-8Thefundedsick 1226521688868759-8
Thefundedsick 1226521688868759-8Jose Gonzalez
 
Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01
Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01
Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01Jose Gonzalez
 
Svca presentation eng 081205
Svca presentation eng 081205Svca presentation eng 081205
Svca presentation eng 081205Jose Gonzalez
 
Startup fundraising checklist (1)
Startup fundraising checklist (1)Startup fundraising checklist (1)
Startup fundraising checklist (1)Jose Gonzalez
 
Sr us 10_draft_programme_eb_site
Sr us 10_draft_programme_eb_siteSr us 10_draft_programme_eb_site
Sr us 10_draft_programme_eb_siteJose Gonzalez
 
Capital raisingscenarioform
Capital raisingscenarioformCapital raisingscenarioform
Capital raisingscenarioformJose Gonzalez
 
Bloom crowdfunding ebook
Bloom crowdfunding ebookBloom crowdfunding ebook
Bloom crowdfunding ebookJose Gonzalez
 
2013 housing-market-forecast
2013 housing-market-forecast2013 housing-market-forecast
2013 housing-market-forecastJose Gonzalez
 
350 veterans assistance-application_04262012x
350 veterans assistance-application_04262012x350 veterans assistance-application_04262012x
350 veterans assistance-application_04262012xJose Gonzalez
 
350 veterans assistance-application_04262012
350 veterans assistance-application_04262012350 veterans assistance-application_04262012
350 veterans assistance-application_04262012Jose Gonzalez
 
25 steps-fundraising-guide (1)
25 steps-fundraising-guide (1)25 steps-fundraising-guide (1)
25 steps-fundraising-guide (1)Jose Gonzalez
 
10 ways-to-secure-business-funding
10 ways-to-secure-business-funding10 ways-to-secure-business-funding
10 ways-to-secure-business-fundingJose Gonzalez
 
Cb insights overview 2013 (investment bank) - media page
Cb insights overview   2013 (investment bank) - media pageCb insights overview   2013 (investment bank) - media page
Cb insights overview 2013 (investment bank) - media pageJose Gonzalez
 
10 ways-to-secure-business-funding (1)
10 ways-to-secure-business-funding (1)10 ways-to-secure-business-funding (1)
10 ways-to-secure-business-funding (1)Jose Gonzalez
 
Self made wealth exercise 1
Self made wealth exercise 1Self made wealth exercise 1
Self made wealth exercise 1Jose Gonzalez
 

More from Jose Gonzalez (20)

V3i3 sample
V3i3 sampleV3i3 sample
V3i3 sample
 
Userguide fundingapplication-forgroups-a1
Userguide fundingapplication-forgroups-a1Userguide fundingapplication-forgroups-a1
Userguide fundingapplication-forgroups-a1
 
Untangling the web
Untangling the webUntangling the web
Untangling the web
 
Thefundedsick 1226521688868759-8
Thefundedsick 1226521688868759-8Thefundedsick 1226521688868759-8
Thefundedsick 1226521688868759-8
 
Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01
Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01
Thebeststartuppitchdeckhowtopresenttoangelsvcs 130706124526-phpapp01
 
Svca presentation eng 081205
Svca presentation eng 081205Svca presentation eng 081205
Svca presentation eng 081205
 
Startup fundraising checklist (1)
Startup fundraising checklist (1)Startup fundraising checklist (1)
Startup fundraising checklist (1)
 
Sr us 10_draft_programme_eb_site
Sr us 10_draft_programme_eb_siteSr us 10_draft_programme_eb_site
Sr us 10_draft_programme_eb_site
 
Gd fundraising (1)
Gd fundraising (1)Gd fundraising (1)
Gd fundraising (1)
 
Capital raisingscenarioform
Capital raisingscenarioformCapital raisingscenarioform
Capital raisingscenarioform
 
Bloom crowdfunding ebook
Bloom crowdfunding ebookBloom crowdfunding ebook
Bloom crowdfunding ebook
 
2013 housing-market-forecast
2013 housing-market-forecast2013 housing-market-forecast
2013 housing-market-forecast
 
350 veterans assistance-application_04262012x
350 veterans assistance-application_04262012x350 veterans assistance-application_04262012x
350 veterans assistance-application_04262012x
 
350 veterans assistance-application_04262012
350 veterans assistance-application_04262012350 veterans assistance-application_04262012
350 veterans assistance-application_04262012
 
25 steps-fundraising-guide (1)
25 steps-fundraising-guide (1)25 steps-fundraising-guide (1)
25 steps-fundraising-guide (1)
 
10 ways-to-secure-business-funding
10 ways-to-secure-business-funding10 ways-to-secure-business-funding
10 ways-to-secure-business-funding
 
Visiontoactiongoals
VisiontoactiongoalsVisiontoactiongoals
Visiontoactiongoals
 
Cb insights overview 2013 (investment bank) - media page
Cb insights overview   2013 (investment bank) - media pageCb insights overview   2013 (investment bank) - media page
Cb insights overview 2013 (investment bank) - media page
 
10 ways-to-secure-business-funding (1)
10 ways-to-secure-business-funding (1)10 ways-to-secure-business-funding (1)
10 ways-to-secure-business-funding (1)
 
Self made wealth exercise 1
Self made wealth exercise 1Self made wealth exercise 1
Self made wealth exercise 1
 

Recently uploaded

FSB Advising Checklist - Orientation 2024
FSB Advising Checklist - Orientation 2024FSB Advising Checklist - Orientation 2024
FSB Advising Checklist - Orientation 2024Elizabeth Walsh
 
Food safety_Challenges food safety laboratories_.pdf
Food safety_Challenges food safety laboratories_.pdfFood safety_Challenges food safety laboratories_.pdf
Food safety_Challenges food safety laboratories_.pdfSherif Taha
 
Micro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdfMicro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdfPoh-Sun Goh
 
Dyslexia AI Workshop for Slideshare.pptx
Dyslexia AI Workshop for Slideshare.pptxDyslexia AI Workshop for Slideshare.pptx
Dyslexia AI Workshop for Slideshare.pptxcallscotland1987
 
Unit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptxUnit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptxVishalSingh1417
 
Introduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The BasicsIntroduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The BasicsTechSoup
 
How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17Celine George
 
SKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptx
SKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptxSKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptx
SKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptxAmanpreet Kaur
 
ICT Role in 21st Century Education & its Challenges.pptx
ICT Role in 21st Century Education & its Challenges.pptxICT Role in 21st Century Education & its Challenges.pptx
ICT Role in 21st Century Education & its Challenges.pptxAreebaZafar22
 
2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx
2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx
2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptxMaritesTamaniVerdade
 
Vishram Singh - Textbook of Anatomy Upper Limb and Thorax.. Volume 1 (1).pdf
Vishram Singh - Textbook of Anatomy  Upper Limb and Thorax.. Volume 1 (1).pdfVishram Singh - Textbook of Anatomy  Upper Limb and Thorax.. Volume 1 (1).pdf
Vishram Singh - Textbook of Anatomy Upper Limb and Thorax.. Volume 1 (1).pdfssuserdda66b
 
Single or Multiple melodic lines structure
Single or Multiple melodic lines structureSingle or Multiple melodic lines structure
Single or Multiple melodic lines structuredhanjurrannsibayan2
 
Unit-IV; Professional Sales Representative (PSR).pptx
Unit-IV; Professional Sales Representative (PSR).pptxUnit-IV; Professional Sales Representative (PSR).pptx
Unit-IV; Professional Sales Representative (PSR).pptxVishalSingh1417
 
Activity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdfActivity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdfciinovamais
 
ComPTIA Overview | Comptia Security+ Book SY0-701
ComPTIA Overview | Comptia Security+ Book SY0-701ComPTIA Overview | Comptia Security+ Book SY0-701
ComPTIA Overview | Comptia Security+ Book SY0-701bronxfugly43
 
ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.MaryamAhmad92
 
Fostering Friendships - Enhancing Social Bonds in the Classroom
Fostering Friendships - Enhancing Social Bonds  in the ClassroomFostering Friendships - Enhancing Social Bonds  in the Classroom
Fostering Friendships - Enhancing Social Bonds in the ClassroomPooky Knightsmith
 
The basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxThe basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxheathfieldcps1
 
Making communications land - Are they received and understood as intended? we...
Making communications land - Are they received and understood as intended? we...Making communications land - Are they received and understood as intended? we...
Making communications land - Are they received and understood as intended? we...Association for Project Management
 

Recently uploaded (20)

FSB Advising Checklist - Orientation 2024
FSB Advising Checklist - Orientation 2024FSB Advising Checklist - Orientation 2024
FSB Advising Checklist - Orientation 2024
 
Food safety_Challenges food safety laboratories_.pdf
Food safety_Challenges food safety laboratories_.pdfFood safety_Challenges food safety laboratories_.pdf
Food safety_Challenges food safety laboratories_.pdf
 
Micro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdfMicro-Scholarship, What it is, How can it help me.pdf
Micro-Scholarship, What it is, How can it help me.pdf
 
Dyslexia AI Workshop for Slideshare.pptx
Dyslexia AI Workshop for Slideshare.pptxDyslexia AI Workshop for Slideshare.pptx
Dyslexia AI Workshop for Slideshare.pptx
 
Unit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptxUnit-V; Pricing (Pharma Marketing Management).pptx
Unit-V; Pricing (Pharma Marketing Management).pptx
 
Introduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The BasicsIntroduction to Nonprofit Accounting: The Basics
Introduction to Nonprofit Accounting: The Basics
 
How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17How to Give a Domain for a Field in Odoo 17
How to Give a Domain for a Field in Odoo 17
 
SKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptx
SKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptxSKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptx
SKILL OF INTRODUCING THE LESSON MICRO SKILLS.pptx
 
ICT Role in 21st Century Education & its Challenges.pptx
ICT Role in 21st Century Education & its Challenges.pptxICT Role in 21st Century Education & its Challenges.pptx
ICT Role in 21st Century Education & its Challenges.pptx
 
2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx
2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx
2024-NATIONAL-LEARNING-CAMP-AND-OTHER.pptx
 
Vishram Singh - Textbook of Anatomy Upper Limb and Thorax.. Volume 1 (1).pdf
Vishram Singh - Textbook of Anatomy  Upper Limb and Thorax.. Volume 1 (1).pdfVishram Singh - Textbook of Anatomy  Upper Limb and Thorax.. Volume 1 (1).pdf
Vishram Singh - Textbook of Anatomy Upper Limb and Thorax.. Volume 1 (1).pdf
 
Spatium Project Simulation student brief
Spatium Project Simulation student briefSpatium Project Simulation student brief
Spatium Project Simulation student brief
 
Single or Multiple melodic lines structure
Single or Multiple melodic lines structureSingle or Multiple melodic lines structure
Single or Multiple melodic lines structure
 
Unit-IV; Professional Sales Representative (PSR).pptx
Unit-IV; Professional Sales Representative (PSR).pptxUnit-IV; Professional Sales Representative (PSR).pptx
Unit-IV; Professional Sales Representative (PSR).pptx
 
Activity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdfActivity 01 - Artificial Culture (1).pdf
Activity 01 - Artificial Culture (1).pdf
 
ComPTIA Overview | Comptia Security+ Book SY0-701
ComPTIA Overview | Comptia Security+ Book SY0-701ComPTIA Overview | Comptia Security+ Book SY0-701
ComPTIA Overview | Comptia Security+ Book SY0-701
 
ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.ICT role in 21st century education and it's challenges.
ICT role in 21st century education and it's challenges.
 
Fostering Friendships - Enhancing Social Bonds in the Classroom
Fostering Friendships - Enhancing Social Bonds  in the ClassroomFostering Friendships - Enhancing Social Bonds  in the Classroom
Fostering Friendships - Enhancing Social Bonds in the Classroom
 
The basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptxThe basics of sentences session 3pptx.pptx
The basics of sentences session 3pptx.pptx
 
Making communications land - Are they received and understood as intended? we...
Making communications land - Are they received and understood as intended? we...Making communications land - Are they received and understood as intended? we...
Making communications land - Are they received and understood as intended? we...
 

A%20 halo

  • 1. 6 The McKinsey Quarterly 2004 Number 1 A halo for angel investors Kevin Curry Steven D. Carden and Olive Darragh A portfolio of investments in socially responsible companies can generate returns similar to those of the S&P 500. Socially responsible businesses Since Investors’ Circle doesn’t manage sacrifice financial returns to pursue social the investments centrally, its members or environmental objectives; that much were keen to know whether the aggregate is known. Just how much of a trade-off they returns from such a portfolio of companies make has always been unclear, however, were competitive with those from other and evidence from the capital markets is angel-investment opportunities. In a survey, inconclusive. A recent study has produced 77 percent of the group’s members said some surprising results: over the ten-year that they expected returns of at least period we examined, a portfolio of invest- 10 percent, but the majority would accept ments defined as socially responsible a “social discount” in exchange for social or generated returns of 8 to 14 percent. That is environmental benefits derived from lower than the rate typically earned a company’s business. by “angel” investors—wealthy people who make direct equity investments in To determine how large a discount, we entrepreneurial ventures, usually at an gathered information on 110 of the 128 early stage—but comparable to capital- companies financed since the organization’s market returns. founding, in 1992. We then used the data to build a portfolio that covered the ten-year We studied investments made by mem- period from 1992 until the end of 2001. bers of Investors’ Circle, a US-based Instead of analyzing the actual returns network of angel investors who put their of individual investors, we used standard money into companies they view as socially investment and current-valuation data.2 responsible.1 Representative investments Our portfolio simulated investments of include Earth’s Best, an organic baby-food $72 million—the aggregate amount that the manufacturer recently acquired by HJ Heinz, organization’s members had invested— and Sonic Innovations, a manufacturer of in 95 operating companies as well as 15 low-cost hearing aids. The latter company venture capital funds, all of which had went public in 2000. social missions as part of their charters.3 Next, we tested our portfolio under two investment strategies. The tests for the first—buy and hold—looked at the perfor- mance of a single initial investment in each
  • 2. �� ���� Current Research 7 ������� ��������� ��� ������� � �� � ������� � company in the portfolio and assumed that ���� ��� ���� these investments were being held for ������������ �� ������� ��� �������� ����������� ��� �������� ����� � the long term. The holdings were valued at the IPO price of the company (if it went public), at its acquisition price, or at �� �� its annual revenue (if it was still privately �������� ������� �� held). The tests for the second investment strategy, called six-month liquidation, �� �� modeled the initial investments plus partici- ���� �� �� �������� ������� pation in each additional funding round �� before an initial public offering or acquisition, �������� �� �� as well as an exit six months following the IPO or acquisition.4 The buy-and-hold ������ ���������� ������� ������� ������� and the six-month-liquidation strategies generated returns of 8 and 14 percent, respectively. Two things explain the perfor- ������ ���� ����� ���������� �� ������ �������� �� ���� ������������� ���������� �� �������� �������� ��� ������� mance advantage of the latter approach. �������� ���� ����������� �� ��� �� ��� ��������� �������� ����� First, since investors can participate in �� ���� ������������� �� ����� �������� �� ������� ����� �� ����� ��� ������� �� ��������� ��� �� ����� subsequent rounds of funding, their initial ������� ��������� ��� ��� ��� ����� �� ������ ���� �������� ������� ������� ������������� ������� �� �������� ���������� ����� �������� �������� equity position isn’t significantly diluted. ������� � �� � Also, the IPO or acquisition allows them to realize higher returns than the natural rate of appreciation generated through the ������� � buy-and-hold strategy. ����� ���� ���� ���� ������� ��� �������� ����������� ��� �������� ����� � As with typical angel or venture capital portfolios, it is very hard to pick individual winners, so a good deal of value was ������� ������� �� derived from the portfolio effect of investing ���������� ������� �� in a range of companies that delivered a range of returns. About a third of the com- ������ ������ ������ ���� �� panies went bankrupt and about a third ��� ��� �� delivered positive returns—results compar- able to those of a venture capital fund (Exhibit 1). The subset of 14 companies that �������� ��� ������� ����������� ��������� ������� ��� ������������ were sold or went public drove the overall �������� � ��� ������� ���� ����������� �� ��� �� ��� ��������� �������� ����� �������� �� ������������� �� ����� returns of our portfolio. Its distinguishing ������� ������������ �������� � ������� ������� ���������� feature was the relatively high number of �������� �������� companies that were acquired (9 percent) and the relatively low number that went public (6 percent). This depressed company values at the time of divestiture below the levels that venture capitalists usually enjoy. Although our portfolio’s performance fell short of typical venture capitalists’ returns during the same period, it was comparable to the returns of the Domini Social Equity Fund, which describes itself as “the oldest and largest socially and environmentally screened index fund, and of the S&P 500 ”
  • 3. 8 The McKinsey Quarterly 2004 Number 1 (Exhibit 2, on the previous page). Returns 1 Unlike venture capital or private equity firms, which for angel investments are difficult to raise money from individuals and institutions quantify because of the individual nature of and then invest directly in portfolios of companies, the investment activity, but interviews Investors’ Circle serves as a matchmaker for individual investors and promising companies with with industry experts suggested that angels social missions. generally expect returns better than 2 Several factors influenced this approach. For one capital markets offer but worse than those thing, we wanted to focus on evaluating companies and not on the skill of investors. Moreover, the of venture capitalists. Most angel investors results could have been skewed by a handful of big never achieve venture capital returns, investments, and the availability of data on specific because angels have lower levels of investment terms was a challenge. 3 Our data covered 142 people who made 444 diversification and not enough capital to investments, with an average initial investment participate in follow-on rounds, so their of $174,000 and an average of $114,000 in equity is diluted. follow-on investments. The data represent the average investments modeled rather than the specific investments these individuals actually made. The track record of the 110 Investors’ 4 After an IPO, during what is called the “lockup Circle companies we studied is a promising period,” employees and other early investors usually can’t exercise their stock options. indication that social-purpose ventures can generate financial returns that meet investors’ expectations. Although our study is too small to make sweeping claims about early-stage social investing, it does present a methodology and a set of results that can aid others looking for both a financial and a social return on their investments. Q Steven Carden is a consultant in McKinsey’s New York office, and Olive Darragh is a director in the Boston office. Copyright © 2004 McKinsey & Company. All rights reserved.