NYA SIDECAR FUNDS
Membership has its privileges, as the saying goes. For members of New York Angels, one of those privileges is the opportunity to invest in New York Angels’ sidecar funds. Since 2007, NYA has launched five sidecar funds. These investment opportunities are exclusively available to current NYA members. The first of these returned approximately 7x to investors. The rest still hold active portfolio companies, so their final returns are not yet known.
Some studies have concluded that a diverse portfolio of startup investments might be expected to have a 2.5x to 3x return. It’s also been reported that “typical” returns for the asset class are in the range of 22% to 27% IRR. However, as we all know, individual results vary widely with some angel investors experiencing low or even negative returns and some enjoying legendary returns, usually driven by one or two outsized exits.
So, how do we increase our chances of being one of those angel investors who achieve those elusive “typical” portfolio returns? Some might advise “chase unicorns” or “do more diligence”? A more proven answer is to “diversify.” According to Fabrice Grinda, one of the world’s most prolific angel investors, “most studies suggest that angels with fewer than 10 investments lose money, while those with more than 10 investments make money.” This is supported by research by The Kaufmann Foundation which shows a strong correlation between the number of portfolio companies and the probability of having good portfolio returns.
Diversification is the main objective behind the NYA sidecar funds. By investing in an NYA sidecar fund, an NYA member is able to build a diverse portfolio of startup companies with relatively little capital within just a few years. This is not intended to replace individual members building their own portfolio of individual investments, but it is a great supplement to it and can greatly accelerate and improve the level of portfolio diversification.
NYA Fund 2021 LLC is the current NYA sidecar fund. It closed in 2021 and is expected to be fully invested within 3 to 6 months from now. As is typical for all NYA sidecar funds, this fund invests only in companies that have secured significant investment commitments from a large number of our members. Each fund, on its own, is a relatively diversified portfolio of at least 14 companies. And because each NYA sidecar fund is administered by a small committee of NYA members, these funds do not charge any management fees and expenses are very low.
Since 2016, NYA members have invested more than $7.8MM in four separate sidecar funds which have so far invested in more than 50 companies. NYA Fund 2021, which launched (as you’d expect) in 2021, attracted capital commitments of more than $2.4MM from more than 50 NYA members. This fund is on track to invest in at least 16 companies. Once this fund is fully invested, a new NYA sidecar fund will be launched.
NYA sidecar funds create other benefits for NYA, NYA members, and NYA portfolio companies. With the extra investment dollars and the additional attention to a deal given by fund administrators, the group of NYA members who are investing have more leverage with portfolio companies which can and often does allow us to improve our deal terms. For instance, we might be able to secure Major Investor rights that would not have otherwise been available to an individual NYA member. Board Observer rights are almost always granted to the NYA sidecar funds which most entrepreneurs consider to be a benefit for them as well. An experienced angel investor who has a voice but not a voting right is often an entrepreneur's best confidante.
