The Myth of the Active Investor


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an "active" angel investorMost people think that angels are active investors in start-ups, which is understandable given the description of angel investing that is provided in most books and articles.  While some angels are active investors, many are not.

Professor Rob Wiltbank of Willamette University studied accredited angel investors involved with organized angel groups – people who had an average net worth of $10.9 million, had founded an average of 2.7 companies, and had averaged 14.5 years as an entrepreneur.   That is, Professor Wiltbank studied the cream of the crop of angel investors.

He found that these angels spent an average of twelve hours per week investing in start-ups, of which only 30 percent is spent on businesses in which they have already invested. This works out to 3.6 hours per week on post-investment involvement with portfolio companies. But because the average investor was invested in 5.16 companies at a time, each angel averaged 41.9 minutes per week per venture!

Moreover, the third of the sample in Wiltbank’s study spent only two hours per week on their ventures. That translates to a little under seven minutes per week of post-investment involvement per venture!  In other words, one third of a group of angels with an average net worth of $10.9 million, had founded an average of 2.7 companies and had averaged 14.5 years as an entrepreneur, spent seven minutes per week on the companies in which they had invested.

That’s hardly active investing.

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.