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I am also curious how many hours this individual put into the investing. I put about two or three hours a year into my investments in VTSAX and VTIAX -- just rebalancing. I would expect given the nature of angel investing that this person put in a good deal more work. Let's say the per company deal size is $100k, and the excess risk adjusted returns are 2%. That means the deal would be worth about $2k extra to you, annually. (I'm counting your baseline investing effort as epsilon, so the deal gets no credit for returns matching my mutual funds.) Suppose your daily rate is $2k/day. You'd want to spend no more than a work day on this deal, per year, over the life of the investment. If the amounts are smaller, or the excess risk adjusted returns are lower, then you'd want to spend less time per deal. This calculus also only applies if you have enough money to roll the dice enough times for the risk to even out. If you only have a million to invest, you'd only be able to do ten deals this size. Perhaps your hourly rate is lower, so you haven't accumulated as much of a warchest. In that kind of situation, you might be willing to work more for the same absolute amount of excess returns, but your risk would also be higher. So your risk-adjusted excess returns might shrink to a negative value. Of course, you can tweak all the variables as suits you, and also there's the possibility that you are person who just enjoys angel investing, the feeling of importance that comes with hob-nobbing with the who's-who, etc. If that's so, then you could view the work as the price of entry, to the extent that it underperforms ordinary investments. |