We’ve been doing a lot of work with LPs to help them assess VC firm quality using our Investor Mosaic algorithm.
Today, we’re going to take the algorithms we apply to venture capital firms and assess a set of elite angel investors to see who, based on cold-hard data and predictive algorithms, are the top angel investors.
Specifically, we’re looking at the top money getters who are part of the AngelList Syndicates program.
Based on Investor Mosaic:
- Jason Calacanis comes out ranked highest
- Having a large AngelList Syndicate backing doesn’t necessarily translate to scoring well based on the data
This post is structured into the following sections (just click a section heading below to be directed there):
- AngelList Syndicates – What are they and why is it hard to pick syndicates?
- What is Investor Mosaic, and what dimensions does it assess Syndicates on?
- Notes on the process
- The Top 5
- Underrated AngelList Syndicates
- What’s next?
AngeList Syndicates – What are they and why is it hard to pick syndicates?
AngelList allows startups to raise equity or debt investment via its platform. It has rightfully been described as one of the most impactful innovations to hit the venture capital industry in a long time.
Towards the end of 2013, AngelList announced its syndicates program which allows angel investors to raise committed capital and charge a carry for the performance of each deal that their backers participate in. Last month, Maiden Lane, a fund that will invest in AngelList Syndicates and deals, launched with over $20M in funding from a variety of investors. The Syndicates program has gained momentum with several well-known figures in the tech community creating syndicates.
The challenge of picking the right syndicate
Unless you are personally familiar with one of the angels behind a syndicate, choosing an AngelList Syndicate to invest in is highly uncertain. Some of the challenges:
- Popularity contest – Without a measure of performance, it has the potential to become a popularity contest. Well-known personalities may garner more syndicate dollars, but does popularity translate to investment success? Of course, there may be a wisdom of crowds here so total dollars raised by any one syndicate is useful but not a clear or data-driven way to make the determination.
- Selection bias – Almost all investors (VCs, angels, PE, etc) have a habit of shouting about their successes and burying their dead quietly. Understanding the prowess of an investor requires having a holistic view into their portfolio.
- Stage of entry – For angels in particular, their point of entry into a company is critical. Calling yourself an angel investor in Facebook when you picked up shares in the secondary markets is a stretch to put it mildly.
AngelList Syndicates is a big innovation in the private company financing landscape and is one we expect will gain momentum especially as more funds like Maiden Lane come to be. There is an opportunity to balance and marry the narrative-driven approach to investing in a syndicate with an algorithmic take as well. That is what we’ve done.
What is Investor Mosaic and what dimensions does it assess Syndicates on?
The Investor Mosaic page details the predictive analytics and approach we’ve used to develop our algorithms, so if you’d like to get into details, we recommend you go there. At a high-level, the Mosaic algorithms are based on a great deal of academic literature and assess an investor on several key dimensions including:
- Performance Persistence – In private company investing, past performance does indicate future performance. As a result, having prior successes is important. However, recency of outperformance is important. So if you invested in a unicorn many years ago, the value of that unicorn to your performance persistence declines over time. This prevents investors from riding the “legend” of a single investment for inordinately too long.
- Network Centrality – How networked is an investor? Think of this as Google PageRank for investors.
- Brand – Measures the visibility and reputation of an investor.
- Investment Discipline – Maintaining a clear focus on a certain stage, geo, and industries leads to outperformance. Fair-weather investors investing in whatever is hot today underperform.
- Selection Aptitude – A measure of dealflow quality and selection prowess. Did you get lucky once or do you consistently find winners (small and big)?
- Illiquid Portfolio Strength – How is your portfolio of currently un-exited private companies performing?
Notes on the Process/Data
- What Syndicates were included? We only included Syndicates with $150k+ committed as of April 20, 2014, who have syndicated a deal. We did not include institutional syndicates, as well as Naval Ravikant’s syndicate, due to his involvement in AngelList and Maiden Lane.
- Compared against all angels – As Investor Mosaic grades investors on a curve, the AngelList angels were evaluated against several hundred other individual angel investors on CB Insights.
- Reality checks on data – Some angels claimed investments in virtually all recent multi-billion dollar exits. Unless it was clear when the investment was made, we excluded these. This ensured that secondary market purchases were appropriately figured into each angel’s Investor Mosaic scores.
- Angel maturity – Performance Persistence in Investor Mosaic is driven by exits. If an angel is relatively new without mature and exited investments, this will impact their score.
- Investment opaqueness – Angel investments are an opaque part of the innovation economy and so tracking is challenging.
The Top 5
Sixteen syndicates met our criteria of $150k+ in commitments and have syndicated a deal as listed below:
When compared against several-hundred other angel investors in the CB Insights database, 5 AngelList investors from these most-backed syndicates came out in the top decile among all angel investors (not just AngelList Syndicate angels).
It’s worth noting that among the top 5, the individual ranks are less meaningful as they are part of the top decile of angel investors and so their underlying Mosaic scores are quite close.
The top 5 participated in 38 deals in the past year with Scott Banister being the most active among the top 5.
When comparing the AngelList rank based on dollars committed versus Investor Mosaic, we see Scott & Cyan Banister jumped the most, scoring 2nd on Investor Mosaic, but were 9th out of the 16 syndicates in terms of backing. This difference in backing per AngelList versus the Mosaic Score is called the Mosaic Expected Value Delta (MEVD). Scott scored very well on Network Centrality which buoyed his Mosaic score.
Underrated AngelList Syndicates
When we look at the top 16 Syndicates overall, we see a few angels who appear to be underrated based on their large MEVDs. Specifically:
- Scott & Cyan Banister (+7)
- Ed Roman (+6)
- Fabrice Grinda (+4)
The table below summarizes AngelList Syndicate ranks (based on $) and Investor Mosaic ranks.
We’re looking at several analyses going forward. Two we’ll share:
- What angels should have syndicates? In other words, identifying angels who don’t have syndicates but should.
- How do you build a diversified pool of AngelList Syndicates? Ensuring that investing in syndicates gets you proper diversification.
With regards to diversification, this is one of the value propositions of AngelList Syndicates. Not only can you get access to a high-risk asset class, but by investing across multiple Syndicates, you can also diversify your early-stage, high-risk bets.
Well – maybe.
One of the things we’re looking at is how to build a portfolio of Syndicates that are sufficiently diversified. By way of example, when we analyze the CB Insights’ Business Social Graph of the top 5 syndicates, we see some overlap among the angels but differentiation as well.
Interestingly, when you look at the Business Social Graph for all 16 of the largest Syndicates, we see more overlap among their investments. If trying to build a diversified pool of Syndicates, understanding which investors actually get you exposure to new markets, companies, etc is important versus a group of popular syndicates that just syndicate with each other.
With the data that we have gathered we intend to look at constructing a portfolio in order to hedge risk, and diversify on factors such as geography, industry, risk-appetite, and overall correlation within the industry.
Not Investment Advice or an Offer
The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice. As with all investments, there are associated risks and you could lose money investing. Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment.
This report was created with data from CB Insights’ emerging technology insights platform, which offers clarity into emerging tech and new business strategies through tools like:
- Earnings Transcripts Search Engine & Analytics to get an information edge on competitors’ and incumbents’ strategies
- Patent Analytics to see where innovation is happening next
- Company Mosaic Scores to evaluate startup health, based on our National Science Foundation-backed algorithm
- Business Relationships to quickly see a company’s competitors, partners, and more
- Market Sizing Tools to visualize market growth and spot the next big opportunity