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.

12 Reactions
  1. Interesting stats. I’d be even more interested to know the profitability of those investments with that group of Angel investors; relating the time spent (7 minutes per week), to the dollars invested, to the profit.

  2. You’re right Kris! What a wonder that these angels only spend 7 minutes per week! Wow, what an investment especially on time! How much do they earn in average with that amount of time spent? What if they double the amount of time spent? Will that affect their profits positively as well?

  3. So, where do we find an active investor who has an interest in participating?

  4. Hi Martin, it seems to me that you’d rather have an investor who only spends 7 minutes on your company per week. Less meddling. 🙂

    Been there, done that, when it comes to outside investors. An interested investor can sometimes help you — introduce you to important connections, offer advice, suggest solutions that you may be too close to the problem to see.

    But an overactive investor can drive you nuts.


  5. Scott, I thought of asking a gentleman, who seems to be involved in start ups, for investment. But I had given up because he seems not involved at all. There’s another gentleman who volunteered investment but wants to get into micro details of how we ran a company. It’s strange that we ran into extremes in both cases or is that typical?

  6. It appears that most angel get involved in investments that come to them through their networks. They typically know the people they are involved with and therefore do not need to or want to spend the time to protect their investment. I agree with Anita’s commens.

  7. I would have to say that these numbers surprised me. I would have assumed that someone investing in my business would want to be actively involved in the happenings. For an angel that only spends a few minutes a week, I would have to assume that they have trust in the business they’ve invested in.

  8. As I’ve been doing recently with a number of Scott’s other posts, I can confirm his facts, but substantively disagree with his conclusions! I’m one of his “cream of the crop” active angel investors. I run New York Angels (one of the largest and most active angel groups in the country, having done 22 deals this year alone), have 70+ companies in my personal portfolio, and spend my full business time on angel-related activities.

    That said, it would be absolutely correct to say that there are some (indeed, many) ventures in which I have invested on which I spend less than 41.9 minutes per week. And the problem with that is?? I’m not running the business, the entrepreneur is! The last thing he or she wants is me looking over his or her shoulder and micro-managing the business. If that’s what I need to do, then I shouldn’t have invested in this company in the first place.

    Think about it this way: if, after pulling together an investment round of half a million dollars for a company (including corralling the investors, structuring the deal terms, doing due diligence analysis [all for no compensation] and then investing $100,000 of my own money), I followed through by serving on the company’s Board of Directors (which would be active involvement indeed), kept updated by asking for and reading weekly management reports (which is way more than most CEOs want to provide), referred the CEO to a dozen high-level sales and business development prospects from my network during the year, and then introduced them to five top tier venture capital firms for potential participation in a follow-on investment round…would that be the kind of “active” angel investor you’d like to have?

    Umm, I think the answer from any entrepreneur I’ve ever met would be “yes, in a heartbeat!”

    Now, let’s look at my time involvement post closing:

    Bi-monthly, three-hour, in-person, board meetings = 18 hours
    Reading weekly reports for 15 minutes (except Christmas week, at 4 minutes) = 12.8 hours
    A dozen sales/biz-dev referrals, taking me 15 minutes each = 3 hours
    Five VC phone introductions with follow up emails, half an hour each: = 2.5 hours

    Total time spent annually = 36.3 hours
    Total time spent weekly per venture = 41.9 minutes

    And this somehow proves that “active angel investors” are a myth? I’m confused…

  9. Hi Scott,

    Does the number of minutes or hours spent by an Angel Investor solely determines if he is active or not?

    @Anita, why an overactive investor can drive you nuts? When can you say that this certain investor is overactive?


  10. Anita: I agree with you. My question was to see if we could get some response from readers and I see one now! 🙂

    David S. Rose: Thank you for your insight. I am interested in learning more about your activities when I am visiting NYC.

    All the Best,

    Martin Lindeskog – American in Spirit.
    Gothenburg, Sweden.

  11. @David Rose – here, here! Thank you for that informed response. I also have the same issue with simply data-mining and thinking that is sufficient to draw conclusions. The world is simple far more complex and many times the best value simply isn’t represented by the data points you’ve focused on.

    Case in point would be your example of business referrals and board involvement. A good referral can be a lifesaver for a startup; perhaps giving them their first “real” sale and thereby bestowing legitimacy on them. The best investors I know in the area offer guidance, expertise, referrals and insight as needed; active involvement as a last resort.

    I’m not sure why Scott seems so focused on tearing down the good image of the angel investing community as of late, but my sense is that wildly contrarian claims are good for selling books.

  12. Great finding your post Scott. Glad you are sharing your insights this way too. Loved having you on the show a few weeks ago. For anyone wanting to hear Scott’s interview on the SPEC Talk Radio Show, please go to More info about investors groups and motivations of investors to join those groups can be found on my post from November and the associated podcast at Follow me on Twitter karen_rands
    To David Rose’s comments, I had an early release of the book and reviewed it with John Mays of ACA and his thoughts were similar to yours. We took solace in the final chapters that held some silver linings. Fortunately in my interview with Scott, we cleared through some of the negative tone to actually create a better picture of sources of these early stage investors that give hope to entrepreneurs at the seed stage, whereas New York Angels and my group, NBAI, play at the later stage as “business angels” to coin Scott’s term.