Not reliably. The best-known study of angel groups (Kauffman Foundation, 2007) found a 2.6x multiple in about 3.5 years, roughly a 27% IRR, but over half of exits lost money and the data favors survivors. After fees, illiquidity and the need for many bets, the stock market's long-run return of about 10% a year is a hard bar.
Comparing angel investing with the stock market sounds like comparing two numbers. It isn't. One is a public index you can buy for almost nothing and sell any trading day. The other is a pile of private bets you can't sell, priced only when someone raises money or buys the company, where one or two outcomes decide everything. The honest answer depends less on the headline return and more on what you subtract from it.
This piece explains the comparison; it is not personal investment advice.
What do the return studies actually show?
The most cited evidence on angel returns is Returns to Angel Investors in Groups, by Robert Wiltbank and Warren Boeker, published by the Kauffman Foundation in 2007. It surveyed 539 angels in 86 groups about 1,137 exits. The headline: across those exits, investors got back 2.6 times their money in an average of about 3.5 years, which the authors put at an internal rate of return of roughly 27%.
The same study shows how that average was produced. 52% of exits returned less than the money invested. 7% of exits returned more than 10x, and the top 10% of exits produced 75% of the cash returned. That is a power law, and it is the single most important fact about angel investing: the average is made by a few large wins, and most individual checks lose.
For the stock market, the usual reference is the S&P 500 and its predecessors. Over the long run since the 1920s, the index has returned about 10% a year before inflation with dividends reinvested, a figure widely cited from long-run market data. Individual decades vary a great deal, and some have been flat or negative.
So on paper, 27% beats 10%. The rest of this article is about why that comparison is weaker than it looks.
Why the two numbers aren't measuring the same thing
Who answers the survey. Angel return studies rely on investors who choose to report. Angels in organized groups, with exits to report, are more likely to respond than those whose portfolios quietly went to zero. That is survivorship bias, and it pushes reported returns up.
What counts as an exit. An exit is a company that sold, listed or shut down. Investments still alive and unpriced sit outside the sample, and those are often the slow ones that will end badly or late.
IRR is not an annual return. An IRR measures cash in and cash out on the dates they happen. A stock index return is time-weighted and assumes your money is invested the whole time. A 27% IRR on money that sat in a few companies for a few years is not the same as earning 27% a year on your whole allocation. Academics use a public market equivalent (the PME, introduced by Steven Kaplan and Antoinette Schoar in 2005) for this reason: it asks what the same cash flows would have earned if you had bought the index on the same dates instead.
Risk you can't see. Stocks are repriced every second, so their swings are visible. A startup's value changes only when it raises or sells, so an angel portfolio looks calm until it suddenly isn't. That doesn't make it less risky; it makes the risk harder to measure.
The costs that shrink angel returns
Even if your gross results match the studies, four costs come off the top.
Fees. An S&P 500 index fund can cost a few hundredths of a percent a year. Syndicates and SPVs usually charge carried interest, commonly up to 20% of profits, the same convention venture funds use, plus setup or administration fees. Fees are taken from the winners, which are exactly the investments that carry a power-law portfolio.
Illiquidity. You generally cannot sell an angel investment when you want to. Exits often take the better part of a decade, and secondary sales, when they are possible at all, usually happen at a discount. Investors expect to be paid extra for locking money up; that extra is called the illiquidity premium, and an angel portfolio has to earn it before it beats the index.
Dilution and follow-ons. Each new round dilutes early holders unless they invest again. Keeping your stake in the winners means writing more checks, which is more capital at risk.
Time. Sourcing deals, reading decks, doing diligence and handling paperwork take hours an index fund never asks for.
Taxes cut both ways. Long-term gains on stocks and on startup shares are taxed at the same federal rates, and startup losses can offset gains. Shares that qualify as qualified small business stock under Section 1202 can make part or all of a gain federally tax-free, an advantage public stocks don't have.
When does angel investing make sense next to stocks?
Because results concentrate in a few companies, the case for angel investing rests on conditions, not on averages.
Enough bets. A handful of checks is mostly a bet on luck. A portfolio has to be large enough to give the power law a chance to work. My guide to diversifying an angel portfolio covers how to spread checks across companies, stages and years.
Access to good deals. The best rounds fill quickly through networks. Angels who see only the deals others passed on face adverse selection, and their results will trail any study.
Money you won't need. Capital for angel checks should be money you can leave untouched for ten years or lose entirely.
A reason beyond return. Many angels invest because they can help founders, learn a sector or back technology they believe in. That is a real reason, and it is different from beating an index.
I've made 234 angel investments, and Lenny's Newsletter ranked me the most active angel investor of 2024. Volume is a response to the power law, not proof of a return. For a fuller picture of how angels plan the shape of a portfolio, see my angel portfolio strategy guide.
How to compare your own results fairly
If you already invest, you can test yourself against the market instead of against a study:
Record every cash flow with its date: each check out, each distribution in.
Compute your IRR and your multiple on invested capital across the whole portfolio, losers included.
Run a simple public market equivalent: pretend each check bought the S&P 500 on the same day and each distribution sold it.
Value unrealized holdings conservatively. The last round's price is a ceiling, not a mark.
Wait. Comparisons before year seven or so mostly measure markups, not outcomes.
For what typical outcomes look like inside a portfolio, read what returns you can expect from angel investing and how angel investors make money. More guides sit in the angel investing section.
Frequently Asked Questions
Q:Is angel investing riskier than the stock market?
Yes, by most measures. Each startup is far more likely to fail than a broad index is to go to zero, and you cannot sell when things go wrong. Diversifying across many companies reduces the risk of a single failure but does not make the asset class liquid.
Q:How many angel investments do you need to match the market?
No number guarantees it. Because returns concentrate in a few companies, the risk of a small portfolio is missing the rare winner entirely, so experienced angels spread checks across many companies over several years rather than a few large bets.
Q:Are angel returns taxed differently from stock returns?
Long-term gains on both are taxed at the same federal capital gains rates. The difference is Section 1202: gains on qualifying startup shares held long enough can be partly or fully excluded from federal tax, and failed investments can produce deductible losses.
Q:Can I sell an angel investment if I need the money?
Usually not on your terms. Shares in private companies have transfer restrictions, and buyers on secondary markets are rare for early-stage companies and typically pay below the last round's price. Plan as if the money is locked up until an acquisition or listing.
Q:Why do angel return studies show such high numbers?
They report on investors who chose to answer and on companies that reached an exit. Both effects favor the winners, which is why a study's average is a ceiling for what a typical new angel should expect.