Investing in startups has the potential for superior returns, but with that comes a higher degree of risk. While the vast majority of exits from startup investments will not see returns of over 50 times the amount invested – as was the case in an investment in WhatsApp – a study with support from the Kauffman Foundation and Angel Capital Education Foundation found that the average return within a 3.5-year time horizon is 2.6 times the amount invested.

Comparing these returns to the returns of the stock market underscores the potential benefit from investing in startup companies. The long-term average return of the stock market has been around 7%. This would have translated into a return of around 1.3 times the amounts invested over that same 3.5-year timeframe.