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Angel investors invest billions of dollars in thousands of entrepreneurial projects annually, far more than the number of firms that obtain venture capital. Previous research has calculated realized internal rates of return on angel investments, but empirical estimates of expected returns have not yet been produced. Although calculations of realized returns are a valuable contribution, expected returns, rather than realized returns, drive investment decisions. The authors use a new data set and statistical framework to produce the first empirical estimates of expected returns on angel investments. They also allow for the time value of money, which previous research has typically ignored. The results suggest that angel investors in groups can expect to earn returns that are on the order of returns on venture capital investments.
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