Angel Investing: What should you adopt from Ryan Reynolds’ investing strategy?
Ryan Reynolds is a name you may have seen in the news recently. Besides being a Hollywood movie star, Reynolds has made a name for himself in the world of business - by being a savvy private investor.
One of the biggest draws of private market investing, including angel investing, is the opportunity for lucrative returns, as more companies are waiting longer to go public and significant growth and value creation happens in the years before IPO (see appendix). By injecting capital in the early stages of a startup, you stand a chance to multiply your investment significantly if the business scales and succeeds.
And Ryan Reynolds’ impressive portfolio of companies has done just that. Despite only starting out in 2018, his portfolio has already yielded 2 unicorns; Wealthsimple and 1Password. In 2018 Reynolds invested in Aviation Gin, which was sold 2 years later to Diageo for an estimated $610 million. In 2019, he acquired a stake in Mint Mobile - a wireless mobile carrier which T-Mobile purchased in March this year, for an estimated $1.35 billion.
And together with fellow actor Rob McElhenney, Reynolds bought Wrexham AFC in 2020 - a Welsh football club that had lingered in the national league for far too many years. The club finally gained a promotion to the English Football League, just last month. Along with the financial rewards that follow from this promotion (and potentially future ones), Reynolds is also cashing in on the “Welcome to Wrexham'' docu-series currently airing on Disney+.
Just like Deadpool, Ryan Reynolds - the angel investor - has a superpower: A unique combination of financial resources, personal brand, story-telling ability, and most of all an extensive network. A composite that is impossible to replicate for most of us - unless of course, you’re about to be cast as Marvel’s next superhero.
So, do you need to be Ryan Reynolds to be a successful angel investor?
Not at all….and thank god for that! High-profile companies like Uber, Airbnb and Dropbox all had early investors without the Ryan Reynolds X-factor, who reaped astronomical returns once these companies were acquired or went public. But if you’re investing in early-stage companies for the potential size of returns, you need to adopt a strategic approach that does not rely on stardom to generate viral ads, but does replicate other aspects of Reynolds’ superpowered formula.
One of the most effective ways to mitigate the inherent risk in startup investing is diversification. Investing in a single startup is, in essence, putting all your eggs in one basket and then balancing that basket on top of a 10 foot pole. If that startup fails, all your invested capital is lost. However, by spreading your capital across multiple startups, you lessen the impact of any single failure.
Research (references below) shows that the more early-stage companies you invest in, the better your odds of a successful outcome. For any single investment, the probability of an angel investor losing their money and earning less than a 1X return is higher than the likelihood of making a profit. However, when investors have a portfolio comprising at least six investments, the median return surpasses 1X. In other words, the average outcome of their investments tends to be profitable. Irving Ebert, from the Ottawa Angels, conducted impressive Monte Carlo simulations using data from data collection efforts in both the US and UK, and discovered that by expanding a portfolio to around 50 investments, the overall return tends to approximate or come close to the returns achieved by the top 5% of all possible outcomes.
That being said, it's not just about quantity but also quality. Picking top-quality startups requires rigorous due diligence, a keen understanding of the potential market, the ability to evaluate business models, startup teams, product viability, and often, a bit of luck.
This is where the value of a strong angel network comes in
Angel networks bring together individuals with diverse backgrounds and areas of expertise. They come together to gather valuable information on startups that their members invest into and can provide support and mentoring to their portfolio companies. Networks often have a formal process for evaluating potential investments, including financial analysis, market research, and vetting of the startup's team. This shared workload can lead to better investment decisions for their members.
By pooling their capital, angel networks are better positioned to negotiate entry terms. That’s also why angel networks often see a higher volume and quality of deal flow than an individual investor would see. Startups are attracted to the potential for larger investment amounts and the mentoring that a group can provide.
But joining a quality angel network is not straightforward. You need to bring expertise to the network's pool of resources and must be willing to invest fairly regularly. What’s more, the minimum investment amount required from you is usually around $20,000-$50,000 per deal which makes it difficult to do 20 investments per year, unless you have a net worth of USD 20-30 million. Building a diversified portfolio that mitigates risk via numbers therefore becomes less viable with limited budgets.
Best of both worlds
StashAway Reserve’s Angel Investing offering is uniquely designed to create a portfolio that takes care of both quality and quantity for our clients, by co-investing with Asia’s #1 Angel Investing Network; XA Network. Our offering increases your exposure to potential high-growth companies (15-20 companies for anything between USD 20,000 to USD 1,000,000 per year) while mitigating the risk associated with startup failures. StashAway drives the decision-making based on the network's expertise which provides an additional assurance of quality, taking away a huge cognitive load from you as an investor.
You likely won’t see Gin or a Football Club added to your Reserve portfolio, but with Southeast Asia being one of the fastest-growing tech hubs globally, the next big thing in tech will likely be from here - and you don't need to be a movie star to be a part of it.Ready to learn more about our Angel Investing offering?