November 14, 2025 Tom Koor

Strategic Advisor vs Consultant vs Coach vs SME vs Trainer. V3

Strategic Advisor vs Consultant vs Coach vs SME vs Trainer. V3

What is the purpose of this article?

Enable your company’s corporate leadership (board of directors, C-Suite, and any controlling shareholders) to discuss the need and value of strategic advisors, coaches, consultants, SMEs, and trainers.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

AI did not write this article. 100% human written.

You can download a PDF of this article from: Strategic Advisor vs Consultant vs Coach vs SME vs Trainer V3

What are the critical learnings in this article?

The focus of the strategic advisor is helping business leaders learn to solve their critical problems.
Learning is a biological process of changing your brain structure.
The best way for you to learn is to create your own conclusions and recommendations based on your own analysis of data.
The worst way to learn is by reading reports and attending presentations.
Determine what combination of: strategic advisor, consultants, coaches, SME, and trainers your company needs. Identify which roles can be humans vs AI workers (often referred to as AI Agents or just AI) vs AI

What are the four ways to compare working strategic advisors, consultants, coaches, SMEs, and trainer?

Focus: Is it the individual or the company?
Problems: What are the problems?
Outcome: What are the outcomes?
Accountability: What are the accountabilities?

Let’s compare strategic advisors, consultants, coaches and trainers, using examples.

Strategic advisors

Focus: The focus of the strategic advisor is helping business leaders learn to solve their critical problems.

Problems: Problem may be unknown, ambiguous, critical to company success or survival

Outcomes: The business leader has learned what to do and has a deep understanding. Problems are identified. Company survival and success.

Accountability: The business leader is accountable for the decisions and cannot blame the advisor. If a decision turns out poorly. The leader must be open and share the most pressing issues and personal doubts. The advisor must provide absolute confidentiality, ask the hard questions and challenge assumptions. Must help the leader see the bigger picture.

Consultants

Focus: The company, division, or project

Problems: Clearly defined problem.

Outcomes: Recommendations, analysis, plans

Accountability: Consultants are accountable for the recommendations and analysis. Business leaders are accountable for the for benefits.

Coaches

This is a business coach, not a life or career coach

Focus: The individual

Problems: 360 assessment has identified issues to resolve.

Outcomes: The next 360 assessment shows major improvements.

Accountability: The individual is accountable for learning to change themselves. The coach is accountable for the learning process.

SME (Subject Matter Expert) e.g. lawyer

Focus: The individual or the company.

Problems: The problem requires advice based on deep fact-based knowledge, such as a lawyer

Outcomes: The business leader has received both the fact-based advice as well as observation on how others have used the advice.

Accountability: The SME is accountable for sharing fact-based information using the language of the business leader. This enables understanding. The business leader makes the decisions.

Trainers

Focus: The individual.

Problems: Need to learn new software, need to learn a new sales process

Outcomes: Using new software each day, using the new sales process each day.

Accountability: The trainer delivers the training. Company does follow up to ensure training is being used. Company also ensures training addresses the real problem e.g. no amount of sales training could have persuaded Blackberry users to not switch to Apple iPhones.

What is learning?

Learning is often critical, as noted above.

What is learning?

Learning is the relatively permanent change in your talent.
The 10 components of your talent are: Self awareness; character, relationship skills, communications, crystallized intelligence, fluid intelligence, cognitive skills, ability to quickly learn and unlearn, creativity, and physical capabilities.
All talent is based on the biological structure of your brain i.e. your neurons and the synapses which connect your neurons.
Learning is a biological process of changing your brain structure. The key changes to enable learning are new connections between neurons and strengthening the connections.

What is the best way for you to learn?

Active learning is the best way to learn. E.g.

The best way for you to learn is to create your own conclusions and recommendations based on your own analysis of data.
Coaching or teaching someone else is the second-best way to learn.
Other good ways to learn are: simulation & role playing, and case study analysis.

All the above approaches engage multiple parts of your brain and make significant changes to your neural connections.

What are the worst ways for you to learn?

The following passive learning approaches don’t result in any significant learning i.e. sustainable change in behaviour and knowledge.

Reading reports
Attending presentations, lectures

All the above have limited changes to limited parts of your brain. As a result, you gain little deep understanding, long term skills, and knowledge retention. BUT, if you take notes while listening to a presentation or reading documents, your learning is improved.

Why is learning hard for you to do, especially if you’ve been a successful leader?

Learning also requires unlearning. The world is changing faster than ever before. Crisis and turmoil are never ending. The future is unpredictable.

What are the psychological barriers to your unlearning?

One barrier is: Unlearning is the conscious process of recognizing that your past skills, experience, and mental models are of limited or no value now.

What are the neurological barriers to your unlearning?

One barrier is: When those skills and knowledge that resulted in your success are challenged, your brain triggers the same defensive and emotional stress response as when you are in physical danger.

Can everyone learn?

Many leaders can learn.
Many leaders are unable to learn. They cannot overcome their psychological and neurological barriers to learning. One business psychologist told me that many leaders are “hardwired to fail”.
In today’s hypercompetitive and turbulent world, the only way for leaders and their companies to succeed is to learn faster and better than competitors.

A strategic advisor will have to end the relationship if it becomes obvious that the business leader cannot or will not learn.

What are some characteristics of a strategic advisor?

The focus of the strategic advisor is helping business leaders learn to solve their critical problems.

Socratic questioning – not giving answers

Active listening – hearing what is not being said – hearing assumptions, biases and fears.

Candor – courage and ability to tell the leader what they need to hear in a way that they can understand.

Comfortable saying “I don’t know”.

Facilitation – guiding the conversation to help the business leader untangle their thoughts

Foresight – help the business leader see the 2^nd and 3^rd order long-term consequences of a decision.

Knowing how to explore the unknown.

Recognizing the emotional and political aspects of the business leader’s environment.

Reframing – helping the business leader look at an old problem from a new perspective.

Synthesis – able to listen a long brain dump from the business leader and identify the one or two key points

Total trust – the business leader must feel safe being vulnerable and uncertain.

Why do you need Strategic Advisors, Coaches, Consultants, and Trainers?

Your leadership talent will not improve by itself.
In today’s competitive business environment capital is unlimited but talent remains scarce.
Olympic gold medal winners need world class coaches.
Sports teams need coaches and trainers.
All levels of the military have ongoing talent development.
The best Strategic Advisors, Coaches, Consultants, and Trainers are rarely the best company leaders or the best athletes.

What are your next steps?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
Assess the types of problems you have and the value of addressing them.
Determine what combination of: strategic advisor, consultants, coaches, SME, and trainers your company needs.
Determine which roles can be humans vs AI workers (often referred to as AI Agents or just AI) vs AI.

What further reading should you do?

“What is learning?” Koor and Associates

https://koorandassociates.org/creating-business-value/why-have-your-minimized-your-talent/

“What are the core components of talent?” Koor and Associates

https://koorandassociates.org/2025/09/29/what-are-the-core-components-of-talent-v6/

“Is your company planning to fail?” I’ve observed that many, if not most, companies are passionately executing their plans to fail.

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

November 13, 2025 Tom Koor

What is a startup? V2

What is a startup? V2

What is the purpose of this article?

This article enables a discussion about how to define and identify whether or not your company is a startup.

The audience for this article includes: investors, founders, board of directors, C-suite, and investment analysts.

This article applies to all companies, ranging from pre-revenue through to long established global companies.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

AI did not write this article. 100% human written.

You can download a PDF of this article from: What is a startup V2

What are the critical learnings in this article?

A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.¹Startups are not building a solution. They are building a tool to learn what solution to build.²
Your company may slip back into the startup stage at any point. Changes may mean that you no longer have a profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
Never ending customer, competitor, external environment, talent, operational, and financial monitoring is key to ensuring your company does not slip back to being a startup.

What is the definition of startup?

A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
Startups are not building a solution. They are building a tool to learn what solution to build.

What does repeatable, scalable, and profitable mean?

Repeatable:

You use the same processes, technology, and types of talent as your company grows. You don’t have to constantly reinvent processes, technology, and talent.

Scalable:

Costs do not increase as quickly as revenue.
You don’t have to make major changes as you grow.
Your talent, processes and technology have the flexibility and capability to support large increases in volume arising from new markets and new customers.

Profitable:

Profitability is determined on a cash flow and net present value basis. This is different from financial statements based on IFRS or GAAP. The appendix contains detailed descriptions of the terms used.

There are 5 steps to calculating overall company profitability:

Step 1 Profit = (lifetime customer revenue) – (Cost Of Goods Sold)

The lifetime calculation must also include the impact of Churn.

Step 2 Profit = (Step 1 profit) – (Customer Acquisition Costs)

Step 3 Profit = (Step 2 profit) – ((General & Admin costs) + (New Development Costs))

Step 4 Profit = (Step 3 profit) – ((debt interest) + (taxes on financial statement profit))

Step 5 Profit = (Step 4 profit) – (debt repayment + other cash disbursements + other cash income)

There are multiple future profit scenarios e.g. debt can be rolled over and does not need to be repaid vs unable to roll over debt.

What are the three overlapping phases and steps of a successful startup?

Phase 1 Understanding customers and competitors

Step1 Understand potential customers.

What are their problems and needs?
What do the customers believe is the value of addressing those problems and needs?
What do customer perceive as their value proposition?
What might the customers pay to achieve their value proposition?

Step 2 What might a solution look like to customers?

What are the characteristics of a solution which might meet the customers value proposition? i.e. What are the benefits? There is a major difference between benefits and features.

Step 3 What are the components of the solution?

What is your business model canvas?

Step 4 What are the cash flow scenarios and related assumptions?

Build a set of cash flow scenarios using the five profit calculation steps above and the definitions in the appendix.

Phase 2 Validating the customers perception of the value

Implement temporary processes and technology to validate the customers value perception.
These processes may be manual. The technology may not be scalable.
Customers are not profitable at this point.
You will be learning by doing many experiments.
Revise your business model and cash flow scenarios

Phase 3 Transition to a repeatable, scalable, and profitable business model

Replace manual processes with lower cost technology.
Replace temporary technology with lower cost technology.
Implement standardized (flexible) processes which are both scalable and lower cost.
Change the organization structure. The talent you hire may also be different.
Continue to revise your business model canvas and cash flow forecasts

How can you tell your company is no longer a startup.

You have 6 months of company financial and operational metrics which validate your assumptions.
You interviewed customers to confirm that they are achieving their value proposition.
NPS (and other surveys) do not reveal major issues.

You will always continue to do the above 4 actions. Why? The world changes and your company may suddenly slip back to being a startup.

What are the critical factors to keep in mind?

The number and size of fund-raising rounds has nothing to do with whether or not a company is a startup. I know of one company that raised $1.75 billion U.S. that shutdown 6 months after launching services. This company never left the startup stage.
Your company may slip back into the startup stage at any point. Changes may mean that you no longer have a profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
Never ending customer, competitor, external environment, talent, operational, and financial monitoring is key to ensuring your company does not slip back to being a startup.

What are your next steps?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
Collect the facts: is your company repeatable, scalable, and profitable?

Footnotes

¹ adapted from: Steve Blank, “What’s a startup – first principles”. https://steveblank.com/2010/01/25/whats-a-startup-first-principles/

² Alistair Croll, Benjamin Yoskovitz , Lean Analytics – Use data to build a better startup faster, Sebastopol, California, O’Reilly Media, 2013, Page 41

What further reading should you do?

What is learning? Koor and Associates

https://koorandassociates.org/creating-business-value/why-have-your-minimized-your-talent/

Is your company planning to fail? Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

What are the core components of talent? Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Appendix – Definition of operational and financial terminology

LTP (Life Time customer Profit)

What is the lifetime customer profit, after customer acquisition costs? This will take into account retention.

CAC (Customer Acquisition Cost) includes all the costs to acquire a new customer:

Sales
Marketing
Onboarding
Related compensation of the people.
Overhead associated with the people.
Technology to support CAC.
Legal expenses associated with sales and marketing.

COGS (Cost of Goods Sold) What comprises cost of COGS? Everything required to meet the direct needs of current customers. E.g.

Customer support people, and software.
Technology e.g. software, cloud services, communications costs.
Bug fix and minor enhancement to the software – after all you do need to retain current existing customers.

CAC is not part of COGS.

G&A (General and Administration) What comprises G&A?

Payroll administration.
Recruiting administration.
Finance
IT security.
Corporate development e.g. M&A.
CEO salary/benefits.
Legal expenses (both in house and external), other than those associated with sales contracts.

R&D/Engineering/new Development?

All of the costs associated with discovering major changes to the business model and enhancing the solution.

November 12, 2025 Tom Koor

What is learning? V3

What is learning? V3

What is the purpose of this article?

This article enables a discussion about what is learning and the best ways to learn.
The audience for this article includes: board of directors, C-Suite, founders, and investors.
This article does not provide tax, legal or financial advice.
You must do your own research and fact-based analysis using current and relevant information.
AI did not write this article. 100% human written.

You can download a PDF of this article from: What is learning V3

What are the critical learnings in this article?

Learning is a biological process of changing your brain structure. The key changes to enable learning are new connections between neurons and strengthening the connections.
The best way for you to learn is to create your own conclusions and recommendations based on your own analysis of data you’ve collected.
The worst way for you to learn is to read reports and attend presentations.
Learning and unlearning is hard to do, especially if you’ve been a successful leader.

What is learning?

Learning is the relatively permanent change in your talent.
The 10 components of your talent are: Self awareness; character, relationship skills, communications, crystallized intelligence, fluid intelligence, cognitive skills, ability to quickly learn and unlearn, creativity, and physical capabilities.
All talent is based on the biological structure of your brain i.e. your neurons and the synapses which connect your neurons.
Learning is a biological process of changing your brain structure. The key changes to enable learning are new connections between neurons and strengthening the connections.

Why do you learn?

You learn for 3 reasons:

Curiosity
An external reward e.g. get a promotion or keep your job
Your own recognition that you your have a gap between your current talent and the talent you need to solve a problem or reach a goal

What is the best way for you to learn?

Active learning is the best way to learn. E.g.

The best way for you to learn is to create your own conclusions and recommendations based on your own analysis of data you’ve collected.
Coaching or teaching someone else is the second-best way to learn.
Other good ways to learn are: simulation & role playing, and case study analysis.

All the above approaches engage multiple parts of your brain and significant change your neural connections.

What are the worst ways for you to learn?

The following passive learning approaches don’t result in any significant learning i.e. sustainable change in behaviour and knowledge.

Reading reports
Attending presentations, lectures

Why is learning hard for you to do, especially if you’ve been a successful leader?

Learning also requires unlearning. The world is changing faster than ever before. Crisis and turmoil are never ending. The future is unpredictable.

What are the psychological barriers to your unlearning?

Unlearning is the conscious process of recognizing that your past skills, experience, and mental models are of limited or no value now.
You were an expert – able to successfully do things without deeply thing about it. Unlearning takes you back to making mistakes, which can be very disturbing to you.
You have become emotionally attached to your mental models.
Your past expertise and experience are part of your identity. Information which contradicts your past, triggers defensive mechanisms to protect your ego.
Learning involves mistakes and uncertainty. This is very uncomfortable for leaders who like to project competence and confidence.
Past successes create the cognitive bias that overestimates your ability in new areas. This results in your believing that you don’t need to learn.

What are the neurological barriers to your unlearning?

When those skills and knowledge that resulted in your success are challenged, your brain triggers the same defensive and emotional stress response as when you are in physical danger.
Your brain has developed many short cuts to enable fast decision making. But when the world that created those short cuts has changed, or when your brain is overloaded, you’ll continue to make those same short cut decisions – which are no longer valid.
When you’re under stress, the part of your brain that detects danger, reduces access to the planning and reasoning parts of your brain. When you are in high anxiety, you are incapable of learning new or complex information.
When you first learn something, you need your prefrontal cortex to go through intense conscious concentration and effort to create neural connections which connect external input to your behaviours and decision. Repetition over time results in your subconscious and automatic behaviours and decisions.
Unlearning is a painful process which requires your prefrontal cortex to consciously suppress your automatic behaviours and decisions AND to create new neural connections which will be stronger than your old neural connections. Your old neural connections are not deleted but become weaker over time.

Can everyone learn?

Many leaders can learn.
Many leaders are unable to learn. They cannot overcome their psychological and neurological barriers to learning. The lack of self awareness results in total conviction that they do not need to learn.
In today’s hypercompetitive and turbulent world, the only way for leaders and their companies to succeed is to learn faster and better than competitors.

What are your next steps?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
Identify which situations requires learning and unlearning vs those situations where you can rely on your automatic behaviours and decisions, based on your historically successful mental models.
Identify those few critical business decisions which require you to maximise your learnings.

What further reading should you do?

What are the core components of talent? Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Is your company planning to fail? Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Note taking is key to value creation. Koor and Associates

https://koorandassociates.org/creating-business-value/note-taking-is-key-to-value-creation/

September 4, 2025September 4, 2025 Tom Koor

Do you need to transform your brain?

The purpose of this post is to share my learnings and unlearnings, with the expectation that some will be of value to you. This post was 100% written by me – not by AI. When you send me an email, my response is 100% written by me.

Why am I able to help business leaders succeed, without telling them what to do?

The leader must make major critical decisions and business changes they’ve never successfully done before.
Leaders who want me (or a subject matter expert) to tell them what to do will usually fail. Why? Hearing what I say, seeing my presentation, or reading my presentation results in leaders having: little in depth understanding, low long-term retention of knowledge, little ability to successfully answer challenging questions, and little ability to make to make ongoing changes to the leaders’ actions.
What results when I ask leaders questions and suggest the thinking they need to do to make their decisions and manage their execution? Leaders have a deep understanding of the knowledge, retain the knowledge for long-periods of time, can successfully answer challenging questions, and can make ongoing changes as they execute.
To learn and understand something new requires their brains to create new neural connections. Brains naturally resist this process. Brains will find many reasons not to change. Changing the mental model of a leader results in mental discomfort, stress, and pain.
A leader doing their own thinking results in them persuading and convincing themselves, with less resistance and pain.

Sharing my learnings

Below are links to my website containing new and revised articles since my last update in May. The critical learnings are included. Each article designed to enable discussion among founders, owners, shareholders, investors, CEOs, and boards of directors. The learnings and unlearnings are applicable to any size company, ranging from early-stage startups to large global enterprises.

Links to my points-of-view articles:

What are the core components of talent? V5

There are 10 core components of talent.
People often focus on just 1 component of talent: Crystallized intelligence (e.g. historical skills, knowledge, experience, etc.) and ignore the other 9. This often leads to major problems, because historical skills, knowledge, and experience are quickly becoming obsolete.
Any role many be comprised of both people and technology (such as software, including AI) talent.
The 10 core components of talent apply to both people, technology, and AI.

https://koorandassociates.org/creating-business-value/core-components-of-talent/

How profitable are public stocks?

The majority of US public stocks from Dec 1925 to Dec 2023 had negative returns.
The best performing 4% of US public stocks from 1926 2016 provided the entire stock market gains which exceeded one-month Treasury Bills.
S&P 500 outperformance relative to S&P 600 small cap and Russell 2000 has been increasing over time.
Most U.S. large cap funds have underperformed the S&P 500 for the past 15 years.
Most U.S. mid-cap funds have underperformed the S&P mid-cap 400 for the past 15 years.
Most U.S. small-cap funds have underperformed the S&P small-cap 600 for the past 15 years.
It appears to be close to impossible to predict the future performance of equity funds by looking at past performance.

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-are-public-stocks/

How profitable is private equity?

The traditional PE equity value creation model appears broken. For 40 years the approach has been financial leverage and increasing the price to EBITDA multiple. This approach now often appears to fail.
The future is impossible to predict. The future is uncertain. The future cannot be predicted by extrapolating historical trends.
Successful GPs and LPs will be those who have the desire and ability to transform themselves.

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-private-equity/

How profitable is venture capital?

If you were good at predicting which fund managers would be successful, you could have had excellent returns. But many Limited Partners (LPs) lost money from their investments.
The trend has been that the % of funds providing any cash return has been declining.
I have read multiple articles that some LPs have started to question VC fund managers who are showing high IRR results (which include both actual realized returns and estimated future unrealized returns) while the LPs are receiving little or no cash because the fund managers are unable to sell their investments to buyers.

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-venture-capital/

How profitable are search funds?

The IRR for traditional search funds in Canada and the US has been 35.2%.
To make a profit by investing in search funds, you need the ability to predict which people (searchers or managers of funds which invest in searchers) have the talent to be successful.
66% of search funds with an investment return, lost some or all their investor money. A small number of search funds generated much of the IRR return e.g. 8 exits had IRRs of 100% or more.
You may need to fund between 30 to 45 searchers, to have a high chance of approaching the IRR for the asset class as a whole.

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-are-search-funds/

How profitable is angel investing? V4

Someone making investments in individual angel startups has the potential to make profit if: has the capital to create a diversified portfolio, the time to do due diligence and support the portfolio companies, the talent to select potentially profitable startups.
Someone making investments in an angel fund has the potential to make profit if: has the time to do due diligence and the talent to select fund managers who will be profitable in the future.
In either of the above cases, you may need to wait 10 or more years before achieving a cash profit.

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-angel-investing/

Are you an angel investor or gambler? V3

You may need to create a portfolio of 20 or more companies.
You might need to invest $800,000 or more.
You need the skills and time for both due diligence and helping founders succeed. Money by itself is not enough.
You need to determine if you’re putting capital into early-stage companies because: you are an investor; you are a gambler; or this is a charitable activity and not part of your overall investment portfolio.

https://koorandassociates.org/selling-a-company-or-raising-capital/are-you-an-angel-investor-or-gambler/

Traditional succession planning dooms your company to failure? V3

Board directors and C-Suite executives must be able to make major decisions on the day they are appointed. Needing to learn about the company for 6-12 months risks failure.
Board directors and C-Suite executives need to have the capabilities to succeed in a future which is very different from the past. These leaders are of limited value if they only have the skills and experience to solve yesterday’s problems with the day before’s solutions.
Board director and C-Suite talent requirements must be defined in terms of the 10 core components of talent. The traditional approach of focusing on crystallized intelligence (i.e. historical skills, knowledge, and data) is insufficient in today’s turbulent and hyper-competitive world.

https://koorandassociates.org/creating-business-value/traditional-succession-planning-is-obsolete/

Personal Update:

Mentored a startup at the University of Toronto, Department of Engineering. The approach was based on weekly advisory board meetings.
Continued as Board Director at a private company.
Continued as a Patient Family Advisor at Sunnybrook Hospital.
Continued my long-term fundraising for the Geoff Carr Fellowship at Lupus Ontario. Over the past 19 years family, friends, neighbours, and colleagues have contributed over 276.000,000. You can use the donation link later in this update
Continued as a member of the Angel Capital Association in the US and the Institute of Corporate Directors in Canada.
Continued to share with you, and on my website, some of what I’ve learned and unlearned, with the intent that some of you will find value. The learnings and unlearnings are applicable to any size company, ranging from early-stage startups to large global enterprises.

I continue to focus my time to maximize the value and impact of my two professional purposes: #1 Enabling current and emerging business leaders to succeed, #2 Enabling business leaders to have a positive impact on society.

To support the Geoff Carr Fellowship at Lupus Ontario

Link to my Geoff Carr Fellowship fundraising page

August 15, 2025August 15, 2025 Tom Koor

How profitable are public stocks?

How profitable are public stocks?

What is the purpose of this article?

This article enables fact-based discussion regarding the profitability of public stocks. The audience for this article includes investors, fund managers, and public company leaders.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from:

How profitable are public stocks

What are the critical learnings in this article?

The majority of US public stocks from Dec 1925 to Dec 2023 had negative returns.
The best performing 4% of US public stocks from 1926 2016 provided the entire stock market gains which exceeded one-month Treasury Bills.
S&P 500 outperformance relative to S&P 600 small cap and Russell 2000 has been increasing over time.
Most U.S. large cap funds have underperformed the S&P 500 for the past 15 years.
Most U.S. mid-cap funds have underperformed the S&P mid-cap 400 for the past 15 years.
Most U.S. small-cap funds have underperformed the S&P small-cap 600 for the past 15 years.
It appears to be close to impossible to predict the future performance of equity funds by looking at past performance.

Do US public stocks provide better returns than US treasury bills?

Historically, most US public stocks have underperformed US one-month Treasury Bills. 4% of US stocks provided the entire stock market gains which exceeded one-month Treasury Bills.

The majority of US public stocks from 1926 to 2016 have lifetime buy-and-hold returns less than one-month US Treasury Bills. The best performing 4% of US public stocks provided the entire stock market gains which exceeded one-month Treasury Bills. ¹
The majority of US public stocks from Dec 1925 to Dec 2023 had negative returns. The highest compound return for any stock listed for at least 20 years, was Nvidea at 33.38% per year.²

How have the major US stock indices performed over the past 20 years?³

S&P 500 outperformance relative to S&P 600 small cap and Russell 2000 has been increasing over time.

Index	2024 Return	5-Year CAGR (2019-2024)	10-Year CAGR (2014-2024)	15-Year CAGR (2009-2024)	20-Year CAGR (20004-2024)
S&P 500	25.0%	17.19%	14.16%	15.02%	9.94%
Nasdaq Composite	29.6%	21.68%	17.58%	18.06%	12.87%
S&P 600 SmallCap	8.7%	11.21%	10.33%	Not Available	Not Available
Russell 2000	11.5%	10.82%	8.90%	10.74%	8.21%

What percentage of U.S. large-cap equity funds underperform the S&P 500? ⁴

Most U.S. large cap funds have underperformed the S&P 500 for the past 15 years.

Fund Category	1-Year Under-performance	5-Year Under-performance	10-Year Under-performance	15-Year Under-performance
All Large-Cap Funds	64.91%	86.53%	91.36%	93.36%
Large-Cap Core Funds	59.48%	80.82%	88.07%	91.67%
Large-Cap Growth Funds	57.65%	89.29%	94.62%	95.21%

What percentage of U.S. mid-cap equity funds underperform the S&P mid-cap 400?⁵

Most U.S. mid-cap funds have underperformed the S&P mid-cap 400 for the past 15 years.

Fund Category	1-Year Under-performance	5-Year Under-performance	10-Year Under-performance	15-Year Under-performance
All Mid-Cap Funds	62.06%	82.99%	88.70%	92.86%
Mid-Cap Core Funds	64.57%	83.18%	90.00%	92.59%
Mid-Cap Growth Funds	62.26%	92.05%	93.23%	96.67%
Mid-Cap Value Funds	88.00%	80.00%	84.81%	89.47%

What percentage of U.S. small-cap equity funds underperform the S&P small-cap 600? ⁶

Most U.S. small-cap funds have underperformed the S&P small-cap 600 for the past 15 years.

Fund Category	1-Year Under-performance	5-Year Under-performance	10-Year Under-performance	15-Year Under-performance
All Mid-Cap Funds	29.83%	77.92%	88.35%	94.46%
Mid-Cap Core Funds	28.00%	76.71%	87.82%	93.97%
Mid-Cap Growth Funds	35.19%	86.96%	95.53%	97.58%
Mid-Cap Value Funds	94.23%	68.00%	78.33%	9057%

Can you predict the future performance of an equity fund manager by looking at past performance? ⁷

It appears to be close to impossible to predict the future performance of equity funds by looking at past performance.

Only 2% of all US large-cap equity funds remained in the top half over 5-years.
None of the top-quartile large-cap or mid-cap funds from 2022 remained in the top quartile for the next two years. This appears to be worse than randomly picking funds.

What are your next steps – as an investor?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people. Different data sources will have different definitions.
Document your future cash flow requirements, with scenarios.
State your overall investment thesis, with metrics for risk tolerance
Define your asset allocation mix and criteria for changing the mix.
State your public stock investment thesis.
Do analysis to determine whether: you’ll be buying individual stocks, buying ETFs, buying mutual funds, or a combination. Clearly describe your criteria for selling.

Footnotes

¹ “Do stocks outperform Treasury Bills”, May 2018, Hendrik Bessembinder, Arizona State University, Page 1

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447

² “Which U.S. stocks generated the highest long-term returns?”, Nov 2024, Hendrik Bessembinder, Arizona State University, Page 1

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4897069

³ Data is from a variety of sources

⁴ “S&P Dow Jones Indices SPIVA U.S. Year-End 2024 Report”

Click to access spiva-us-year-end-2024.pdf

⁵ “S&P Dow Jones Indices SPIVA U.S. Year-End 2024 Report”

Click to access spiva-us-year-end-2024.pdf

⁶ “S&P Dow Jones Indices SPIVA U.S. Year-End 2024 Report”

Click to access spiva-us-year-end-2024.pdf

⁷ “U.S. Persistence Scorecard Year-End 2024” S&P Dow Jones SPIVA

Click to access persistence-scorecard-year-end-2024.pdf

What further reading should you do?

How profitable is angel investing? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-angel-investing/

How profitable are search funds? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-are-search-funds/

How profitable is venture capital? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-venture-capital/

How profitable is private equity? Koor & Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-private-equity/

Your company will fail. Koor and Associates

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

What are the core components of talent? Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

August 11, 2025August 15, 2025 Tom Koor

How profitable is private equity?

How profitable is private equity?

What is the purpose of this article?

This article enables a discussion regarding the profitability of PE (Private Equity) funds. The focus is on traditional PE funds with a fixed liquidation date. Much, but not all, of the data is about buyout PE funds.

The audience for this article includes: LPs (Limited Partners), GPs (General Partners i.e., PE fund managers) and PE fund portfolio company leaders.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: How profitable is Private Equity

What are the critical learnings in this article?

The traditional PE equity value creation model appears broken. For 40 years the approach has been financial leverage and increasing the price to EBITDA multiple. This approach now often appears to fail.
The future is impossible to predict. The future is uncertain. The future cannot be predicted by extrapolating historical trends.
Successful GPs and LPs will be those who have the desire and ability to transform themselves.

What types of companies get PE investments?

The company is well established and mature. There is a long operational and financial history. The company revenue is often in the $100’s of millions.

How many years does a PE fund exist before it is liquidated, all of its investments sold, and cash distributions to LPs completed?

I’ve often read that a PE fund lasts for 10 years. But what are the facts?
At the end of 2024, the average age at liquidation was about 15 years. ¹

Some recently launched PE funds have target lifetimes of 15 to 20 years or no fixed end date.

How profitable have PE funds been?

#1 If you had the talent to assess GPs and could predict managers would be successful, you could have had excellent returns. But many LPs did poorly or lost money.

#2 PE has outperformed the S&P Small Cap 600 and Russell 2000 by about 6% per year in the past 5 and 10 years. It’s been about 3% per year outperformance in the past 15 years. ² Many PE portfolio companies are comparable in size the companies in the S&P Small 600 600 and Russell 2000.

#3 What have been the IRR returns for PE funds?

What were the IRR results for fund launched from 2000 to 2007, based on Q4 2024 data.³

LPs lost money or had poor returns in bottom decile funds. Top quartile funds did well.

The yearly IRR for the combined assets of all PE funds ranged from 7.81% to 22.56%
The yearly median fund IRRs ranged from 8.00% to 16.20%
The yearly bottom quartile fund IRRs ranged from 3.29% to 8.54%
The yearly bottom decile funds IRRs ranged from -2.68 to +2.00%
The yearly top quartile fund IRRs ranged from 13.93% to 22.60%

#4 What were the IRR results for North Americans PE funds launched from 2010 to 2015, based on Q4 2024 data.

I have not included the published IRR results. Why not? Many of these funds have not yet liquidated. Thus, the IRR numbers often include both actual cash returns to LPs plus hoped for future returns.

#5 How many North American PE funds have lost money for LPs?

LPs lost money, and never recovered all of their investments, in over 10% of the North American funds launched from 2000 to 2007.⁴

What have been the massive changes in the public vs private equity markets?

Over the past 10 years private equity has spent $900 billion taking public companies private. ⁵
From 2000 to 2024 the number of US public companies declined from about 7,000 to 4,500. The number of PE backed companies grew from about 2,000 to 11,600. ⁶
61% of the stock value creation occurs prior to the IPO, leaving less value creation potential for the average investor. 85% of US unicorns that went public were unprofitable in 2023.⁷
44% of the Russell 2000 companies are unprofitable. ⁸
The conventional thinking that smaller companies outperform larger companies is not supported by facts. The Russell 2000 has been underperforming the S&P 500 and Nasdaq composite by increasing amounts over the past 20 years. E.g. over 20 years: -5.6% per year, over 10 years: -9.2% per year, over 5 years: -10.7% per year. ⁹

What are the current GPs face in providing cash returns to LPs?

The traditional PE equity value creation model appears broken. For 40 years the approach has been financial leverage and increasing the price to EBITDA multiple. ¹⁰This approach now often appears to fail.
The total PE assets appear to be greater than the capacity and demand from IPOs and operating companies.
There is a backlog of portfolio companies waiting for exits The assets under management have tripled since 2014 while the value of exits has remained flat, resulting in a build up of unsold assets. ¹¹ Late 2024, global buyout funds were holding about $3.6 trillion of unrealized value in about 29,000 unsold companies. ¹²
To provide capital returns, GPs: are borrowing money to give to LPs or selling some assets to the GP ‘s continuation fund. ¹³ (the cash from LPs investing in the continuation fund can be given to LPs in the original fund.) Most existing investors in a PE fund decline the option to roll over their investment in a continuation fund run by the same GP. ¹⁴
There different points of view regarding portfolio companies sold to a continuation fund. Some believe these portfolio companies have major profit growth potential and they should be retained. Others believe these portfolio companies have few or no buyers and thus are being sold to avoid a write-down.
LPs are getting return on capital by selling their interest in a fund to a third party. This is a secondary investment. Online marketplaces are emerging to enable LPs to sell their PE fund investments.

What will the future look like?

The future is uncertain and impossible to predict. The future cannot be predicted by extrapolating historical trends.
The future will be turbulent, with unforeseen major crisis.
The future will be even faster changing: technology, what customers perceive as urgent needs and problems, global political environment.
Competition will become even more fierce. Competitors will grow even faster, fuelled by unlimited capital.
Historical knowledge, skills, experience, and facts will become obsolete even faster.

What are the implications of the future upon GPs?

Increasing equity value by financial leverage and multiple increase will have limited applicability.
The knowledge, skills, experience, facts, and software of many GPs has become obsolete.
One of the critical GP skills will be helping portfolio leaders understand customers and provide what customers perceive as a competitively differentiated value proposition.
Future successful GPs will be different from those who succeeded in the past.
GPs will have to transform themselves.

What are the implications of the future upon LPs?

The knowledge, skills, experience, facts, and software of many LPs have become obsolete.
LPs will have to be able to assess which GPs will be able to transform themselves and transform their portfolio companies.
LPs will have to be able to assess which GPs have the talent needed to succeed in the future.
LPs will have to transform themselves.

Why will most GP and LP leadership transformations fail?

The main reasons for failure are psychological and cognitive.
Leaders succeeded due to the success of their past mental models. In a very different future, those mental models are no longer valid. It is often impossible for leaders to consciously recognize this.
Leaders, like most people, keep repeating what they know how to do and what has proven to work in the past.
The leader is trapped by their own expertise.
Leaders often like to be perceived as decisive and correct. Their ego makes it difficult to admit mistakes, to say “I don’t know”. Many leaders will continue to make decisions without listening, learning, and unlearning.
Transformation is inhibited by cognitive biases such as: status quo bias (preference for no change), loss aversion (failures are more emotionally acute than successes), over confidence in their own judgement and abilities.
Many leaders are afraid to fail. It takes courage to do new things with no certainty of success.

What are your next steps – as an LP?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people. Different data sources will have different definitions.
Document your future cash flow requirements, with scenarios.
State your overall investment thesis.
Define your asset allocation mix and criteria for changing the mix.
State your private equity investment thesis.
Describe future scenarios.
Determine the required GP talent, skills and tools needed to be successful.
Assess GPs against talent requirements.
To do fact-based analysis you may have to: pay for access to databases, interview GPs and their portfolio company leaders, analyze the GPs data room, and utilize AI tools.
When looking at IRR – determine the IRR of cash to LP, excluding hoped for returns.
When looking at NAV, four possible additional metrics about portfolios are cash received if the company was: IPOed, sold to an operating company, sold to a secondary buyer, or sold to the GPs continuation fund.

Footnotes

¹ “Private Equity in 2025: The outlook for fundraising, deals, and performance” , Preqin, January 05, 2025

https://www.preqin.com/news/private-equity-in-2025-the-outlook-for-fundraising-deals-and-performance

² “Private Equity Can Add Diversification to Your Public Index Holdings”, page 6, iCapital, 2025 July 16

https://icapital.com/category/insights/private-equity/

³ “ Private Equity PitchBook Benchmarks Q4 2024”, Page 19,PitchBook

https://pitchbook.com/news/reports/q3-2024-pitchbook-benchmarks-with-preliminary-q4-2024-data

⁴ ibid., Page 23

⁵ “Private Equity Can Add Diversification to Your Public Index Holdings”, page 5, iCapital, 2025 July 16

https://icapital.com/category/insights/private-equity/

⁶ibid., Page 5

⁷ibid., Page 5

⁸ibid., Page 5

⁹ibid., Page 6

¹⁰ “Bridging Private Equity’s Value Creation Gap”, page 2, McKinsey, 2024 April 12

https://www.mckinsey.com/industries/private-capital/our-insights/bridging-private-equitys-value-creation-gap

¹¹ 2025 Global Private Equity Report – Bain, Page 4,6

https://www.bain.com/insights/topics/global-private-equity-report/

¹² ibid., Page 17

¹³ What is a continuation fund? A GP creates a new fund, managed by the GP. Some assets are sold to the new fund. LPs have the option to receive cash or roll over their investments into the new fund.

¹⁴ Kobi Kastiel, Yaron Nili “The rise of private equity continuation funds”, Chicago Booth Stigler Center January 2024 page 1

https://www.chicagobooth.edu/research/stigler/research/-/media/5d46328c68e0466b9787f42d98275f3b.ashx

What further reading should you do?

How profitable is angel investing? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-angel-investing/

How profitable are search funds? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-are-search-funds/

How profitable is venture capital? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-venture-capital/

Your company will fail? Koor and Associates

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

What are the core components of talent? Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

LP (Limited Partner) assessment of a fund. Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/lp-limited-partner-assessment-of-a-fund/

July 17, 2025 Tom Koor

How profitable is venture capital?

How profitable is venture capital?

What is the purpose of this article?

This article enables a discussion regarding the profitability of VC (Venture Capital) funds. The focus is on traditional VC funds with a fixed liquidation date. The article scope excludes: evergreen and perpetual funds.

The audience for this article includes: LPs (Limited Partners), VC fund managers, and VC fund portfolio companies.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: How profitable is Venture Capital

What are the critical learnings in this article?

If you were good at predicting which fund managers would be successful, you could have had excellent returns. But many Limited Partners LPs lost money from their investments.
The trend has been that the % of funds providing any cash return has been declining.
I have read multiple articles that some LPs have started to question VC fund managers who are showing high IRR results (which include both actual realized returns and estimated future unrealized returns) while the LPs are receiving little or no cash because the fund managers are unable to sell their investments to buyers.

What types of companies get VC investments and why?

The company has gone past the startup stage. The company has found a repeatable, scalable, and profitable business model with lot of potential customers who are willing and able to pay to solve their problems and needs. The company has found a profitable solution to scale.
Investment is needed to quickly grow the company.
The company may show losses (both from a cash flow and accounting perspective) due to the focus on lifetime customer profitability.
The number and size of fundraising rounds has nothing to do with whether or not a company is in the VC stage. Some companies have raised more than a billion dollars, never left the startup stage, and shut down.
A company may slip back into the startup stage at any point in its life.

How many years does a VC fund exist before it is liquidated, all of its investments sold, and cash distributions to LPs completed?

I’ve often read that a VC fund lasts for 10 years. But what are the facts.
Only 7 % liquidate within 10 years. Median funds takes slightly longer than 14 years. 46% take 15 years or longer.¹

How profitable have VC funds been?

If you were good at predicting which fund managers would be successful, you could have had excellent returns. But many LPs lost money from their investments.

Let’s look at the IRR for funds that were launched at least 15 years before the report date.

#1 US VC report published in 2017.²

What have been the IRR results for find launched in each year from 1988 to 2000?

If you were good at predicting which fund managers would be successful, you could have had excellent returns. But many LPs lost money from their investments.

The yearly IRR for the combined assets of all funds ranged from: -0.89% to 100.83%

The yearly median fund IRR ranged from: -3.76% to 41.65%

The yearly lower quartile IRR ranged from: -11.58% to 21.54%

The yearly upper quartile IRR ranged from: 3.20% to 80.62%

#2 US VC report published with data up to 2023 ³

What have been the IRR results for find launched in each year from 2000 to 2010?

The yearly IRR for the combined assets ranged from: -0.65% to 15.4%

The yearly median fund IRR ranged from: -0.35% to 12.84%.

The yearly bottom quartile IRR ranged from: -10.39% to 4.69%

The yearly upper quartile IRR ranged from: 4.65% to 22.87%

What will be the returns for recently launched funds?

No-one can predict the future.
The trend has been that the % of funds providing any cash return has been declining.
I have read multiple articles that some LPs have started to question fund managers who are showing high IRR results (which include both actual realized returns and estimated future unrealized returns) while the LPs are receiving little or no cash because the funds managers are unable to sell their investments to buyers.

Based on Q1 2025 results, what has been the approximate % of VC funds which provided any cash returns?⁴

What have been the results for funds 3 years after launching?

Funds launched in 2017: 33%
Funds launched in 2018, 2019, 2020 – all about 22%
Funds launched in 2021: 10%

What have been the results for funds 4 years after launching?

Funds launched in 2017: 52%
Funds launched in 2018, 40%
Funds launched in 2019, 32%
Funds launched in 2020: 28%

What have been the results for funds 5 years after launching?

Funds launched in 2017: 70%
Funds launched in 2018, 43%
Funds launched in 2019, 35%

What are your next steps?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
Define your long-term cash flow requirements and plan, with scenarios.
Determine your asset allocation over time.
Do your own fact-based research.

Footnotes

¹ The New Reality of the 14-Year Venture Capital Fund, Institutional Investor, Feb 19, 2015

https://www.institutionalinvestor.com/article/2bsv31916hb46dpp501ds/portfolio/the-new-reality-of-the-14-year-venture-capital-fund#:~:text=Venture%20capitalists%20structure%20and%20market,than%2014%20years%20to%20end.

² Page 13 US Venture Capital Index and selected benchmark statistics Dec 31, 2017, Cambridge Associates

https://www.cambridgeassociates.com/wp-content/uploads/2018/05/WEB-2017-Q4-USVC-Benchmark-Book.pdf

³ 2024 Q4 Venture Capital Pitchbook Benchmarks , Page 12

https://pitchbook.com/news/reports/q4-2024-pitchbook-benchmarks-with-preliminary-q1-2025-data

⁴ Q1 2025 VC Fund Performance Report – Carta

https://carta.com/data/vc-fund-performance-q1-2025/

What further reading should you do?

LP (Limited Partner) assessment of a fund. Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/lp-limited-partner-assessment-of-a-fund/

Your company will fail. Koor and Associates

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

How profitable is angel investing? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-angel-investing/

How profitable are search funds? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-are-search-funds/

June 30, 2025June 30, 2025 Tom Koor

How profitable are search funds? V3

How profitable are search funds? V3

What is the purpose of this article?

Help investors think about whether to invest time and money into the search fund asset class.

The audience for this article includes: investors considering search fund investments, and search fund founders.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: How profitable are search funds V3

What are the critical learnings in this article?

The IRR for traditional search funds in Canada and the US has been 35.2%.
To make a profit by investing in search funds, you need the ability to predict which people (searchers or managers of funds which invest in searchers) have the talent to be successful.
66% of search funds with an investment return, lost some or all their investor money. A small number of search funds generated much of the IRR return e.g. 8 exits had IRRs of 100% or more.
You may need to fund between 30 to 45 searchers, to have a high chance of approaching the IRR for the asset class as a whole.

What is a search fund?

What is a traditional search fund?¹

An investment vehicle formed by one or two entrepreneurs (i.e. “searchers”) along with investor mentors. They search for, acquire, and lead a privately held company for the medium to long-term. The searcher and investors exit at that time. Investors fund the search costs and the acquisition costs. The entrepreneur becomes the CEO after the acquisition.

These investors are very actively involved as: coaches, mentors, advisors, and board directors. The investors do far more than provide capital.
The searchers typically have an MBA.
The searchers search for a private company to acquire, lead, grow, and sell.
It takes 2-6 months to find the investors and capital to launch the search fund.
The search takes 12-24 months.
Growing the value of the company takes 4 to 7 (or more) years.
The exit process takes 6 months.

What are alternative search fund models?²

Self-funded search: the searcher funds the search themselves, without investors.
Single investor model: only one investor e.g. single professional investor, family office, private equity firm, etc.
Long-term hold: hold for more than 10 years.

How profitable has the search fund asset class been

The following metrics are for the U.S. and Canada

681 traditional search funds formed from 1984 through to Dec 31, 2023³

The IRR has been: ⁴

1% for all investments made, and 33.0% if the top 5 companies were excluded.
These IRR returns have been relatively constant from 2008 to 2023.
A small number of search funds generated much of the IRR return e.g. 8 exits had IRRs of 100% or more.⁵

66% of search funds with an investment return, lost some or all their investor money. (See Appendix 1)

How many search funds do you need in your portfolio?

You need a large number of search funds in your portfolio. Why? Many funds lose money with their acquisitions or have poor returns. You need a large number to reduce the risk of too many poor performing funds.

A Monte Carlo simulation of search fund performance suggests a portfolio size of 20 to 30 funds that have made acquisitions.⁶ Given that 37% of search funds don’t make an acquisition, you’d need to fund between 32 to 48 searchers, to have a high chance of approaching the IRR for the asset class as a whole.

What is the capital you require?

The following is my brief analysis of the capital you require for your search fund portfolio to approach the IRR returns of the asset class as a whole.

As an investor, your initial search fund investment might range from $25,000 to $50,000. Funding 32 to 48 searchers would require from $800,000 to $2,400,000.
Additional funds would be required to support acquisitions.
In the traditional search fund model, you must provide much more than capital: you need the skills and knowledge to: coach, mentor, advise, and deliver value on the boards of search funds.

If you have a small portfolio, you have a high chance of returns below the asset class as a whole.

What are your next steps?

Review your investment thesis, asset allocation, and investable assets to determine if you have the capital to create a portfolio of search funds.
Assess your skills, experience, relationships, capabilities, and time availability to determine your potential to coach, mentor, and provide value as board director.
Consider if you’ll create and manage a portfolio of search funds OR if you’ll invest in a fund which has a large portfolio of search funds.
If you’re considering investing in a fund with a portfolio of search funds, you should: Build a financial model which considers the fees and exit times of the fund; and create a due diligence process to assess the fund’s: talent, processes, business model, and historical results.
Regardless of the path you decide to take you must also assess the talent of the other investors. Why? The success of the traditional search fund model depends on the ability of the other investors to provide value via coaching, mentoring, and board directorships.

Footnotes

¹ Sara Heston and Peter Kelly, “2024 Search Fund Study – Research Overview”, Stanford Graduate School of Business. Page 3

https://www.gsb.stanford.edu/faculty-research/case-studies/2024-search-fund-study

² Ibid., 27

³ Ibid., 4

⁴ Ibid., 8

⁵ Ibid., 21

⁶ Andrew Locke, Diversification in search fund investing: The only free lunch?

https://www.linkedin.com/pulse/diversification-search-fund-investing-only-free-lunch-andrew-locke/

What further reading should you do?

Stanford Graduate School of Business – search fund primer

https://www.gsb.stanford.edu/experience/about/centers-institutes/ces/research/search-funds/primer

Search Funds – What has made them work? Rob Johnson, IESE

https://media.iese.edu/research/pdfs/ST-0357-E.pdf

International Search Funds – 2024 – Selected Observations, IESE Business School, University of Navarra

https://www.iese.edu/media/research/pdfs/ST-0658-E

Appendix 1

Data is from “2024 Search Fund Study – Research Overview”, Stanford Graduate School of Business.” Page 5

681 search funds raised. Relatively small investment made by some combination of investors and the searcher.

7 raised capital but then changed direction away from a search fund

674 raised capital to follow search fund direction

150 still searching – no financial result at this point.

166 still operating – no financial results at this point

316 funds with no financial result yet,

358 have a financial result.

196 exited with no acquisition – relatively small initial investment lost.

40 did acquisition but had negative return

236 lost some or all of investment 122 had positive return

66% of investment made (236/358) lost some or all of the investment

June 27, 2025 Tom Koor

Are you an Angel investor or gambler? V3

Are you an angel investor or gambler? V3

What is the purpose of this article?

Help you identify whether you are an Angel investor or a gambler.

This article does not provide tax, legal, or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: Are you an Angel investor or gambler V3

What are the critical learnings in this article?

You may need to create a portfolio of 20 or more companies.
You might need to invest $800,000 or more.
You need the skills and time for both due diligence and helping founders succeed. Money by itself is not enough.
You need to determine if you’re putting capital into early-stage companies because: you are an investor; you are a gambler; or this is a charitable activity and not part of your overall investment portfolio.

How do you recognize if you are an investor?

The primary purpose of your investments is to grow and preserve your financial wealth.
There may be secondary purposes such as enabling social good.
You may have a variety of asset classes. These provide diversification, which may increase the probability of financial return and reduce the probability of financial losses.
You are tracking the return of your investments.

There are many other ways to spend money, other than investing

For most people, the major of their spending does not go into investments.
Hobbies, entertainment, social activities, intellectual stimulation, charities, giving back, and gambling are just some of the ways money is spent. g. I buy 6 lottery tickets a year at $3 each.
These other activities are not investing. I might win millions with my lottery ticket. Lottery tickets are not where I invest money.
If the primary purpose of your spending is other than growing and preserving wealth, then that spending is not part of your investing.

What is an angel investment

An early-stage company may get angel investment before venture capital firms make an investment
An angel investor may continue to make investments, along side venture capital funds and others, as the company grows.

How do you recognize if your angel investments are actually gambling?

What are the facts?

The following findings are from a 2020 study of more than 10,000 individual early-stage portfolios on AngelList.¹

Angel investments, as an asset class, generate 15% IRR (combination of realized and unrealized gains)
Investors who made 1-5 investments had a median return of 0.0% IRR.
Investors who made 10 investments had a median IRR of about 6%. 32% of these investors lost money.
Investors who made 20 investments had a median IRR of about 7%. About 16% of these investors lost money.
Investors who made 50 investments had a median IRR of about10%. About 11% of these investors lost money.
Investors who made 100 investments had a median IRR of about 14%

Many, if not most, angel investors have a limited return, although the asset class as a whole performs relatively well. A small portfolio of investments has low median IRR and significant chance of losing some or all of your capital.

How do you change the odds to be an investor rather than a gambler?

There are four ways to be an angel investor rather than a gambler.

#1 Create a portfolio of 20+ investments

This will require significant amounts of your time and capital.

#2 Spend more than 40 hours on your personal due diligence.²

Spend more than 20 hour of due diligence time for each potential investment.
Angels who spend less than 20 hours have an average return of 1.1X capital.
Angels who spend more than 20 hours have an average return of 5.9 X capital.
Angels who spend more than 40 hours have an average return of 7.9 X capital.

You must consider if you have the skills and knowledge necessary for effective due diligence. I don’t know the relationship between increased due diligence and the number of investments.

#3 Join an angel investor group

The rationale is to reduce your due diligence workload, get exposed to a larger number of good opportunities, and learn from successful investors.
I have no advice on how you can conduct due diligence on an angel investor group, considering its members, its processes, and its potential for future financial success.

#4 Invest in an angel fund

The fund should have a large number of investments in its portfolio.
I have no advice as to how you could conduct due diligence on an angel fund, assess management, and determine the potential for future financial success.

How should you think about the amount of capital needed to become an angel investor and not a gambler?

The following example is based on a set of assumptions:

You’re going to make 24 upfront investments over 1-3 years. As noted above, your median return may be a little more than 7%IRR. Like that any exits in the first three years will be failures. These early exits may not provide any capital for reinvestment.
You’ll invest in pre-seed: 75% fail³
You’ll invest at seed stage, 50% fail³
You’ll invest in Series A; 50% fail³
You’re investing at seed and Series A for two reasons: these companies have survived; and later stage investor may impose terms (such as liquidation preferences) which reduce the value earlier investments.
At each stage, each individual investment is $25,000. In some cases, the startup may have larger minimum cheque sizes.
Your capital requirement may be: (Pre-seed: 24 X $25,000) + (seed: 6 X $25,00) + (Series A: 3 X $25,000) = $825,000

Often, the seed and Series A investments are large than pre-seed. This means that your overall capital requirement may range to a $1,000,000 or more. If you’ve decided to allocate 10% of your investable assets into the angel asset class, your total investments may need to be $10,000,000 or more.

What are your next steps?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
You cannot predict the future. The above fact-based analysis is historical. Many changes have occurred in the past few years: the amount of capital available at the early stage has exploded; many early-stage funds have been created; the number of early-stage investors has grown. You’ll have to determine what the future scenarios could be.
The angel asset class as whole may do well, but your personal results depend upon your investment process and thesis. Assess whether you have the appropriate skills and time to be an Angel investor.
Carefully review and understand published reports from investors and funds. Some state their results as including both realized and unrealized gains.
Make your own assumptions and analysis regarding the amount of capital you’re going to devote to angel investing.
Determine if you’re putting capital into early-stage companies because: you are an investor; you are a gambler; or this is a charitable activity and not part of your overall investment portfolio.

Footnotes

¹ Nigel Koh, Abraham Othman, “How portfolio size affects early-stage venture returns”, AngelList, https://angel.co/blog/how-portfolio-size-affects-early-stage-venture-returns

² Robert E. Wiltbank, PhD Willamette University, Warren Boeker, University of Washington, “Returns to Angel Investors in Groups, November 2007”

https://www.angelcapitalassociation.org/data/Documents/Resources/AngelGroupResarch/1d%20-%20Resources%20-%20Research/ACEF%20Angel%20Performance%20Project%2004.28.09.pdf

3 “Startups’ success and failure rate in 2023”

https://spdload.com/blog/startup-success-rate/

What further reading should you do?

How profitable is angel investing? Koor and Associates

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-angel-investing/

Your company will fail. Koor and Associates

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

June 20, 2025June 23, 2025 Tom Koor

How profitable is angel investing? V4

How profitable is angel investing? V4

What is the purpose of this article?

Share with you some fact-based profitability analysis from the U.S. angel community. I am not aware of similar detailed fact-based based analysis of the Canadian angel community.
Enable you to think about whether you want to make money as an angel investor and what you might have to do to make money.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: How profitable is Angel Investing V4

What are the critical learnings in this article?

Someone making investments in individual angel startups has the potential to make profit if: has the capital to create a diversified portfolio, the time to do due diligence and support the portfolio companies, the talent to select potentially profitable startups.
Someone making investments in an angel fund has the potential to make profit if: has the time to do due diligence and the talent to select fund managers who will be profitable in the future.
In either of the above cases, you may need to wait 10 or more years before achieving a cash profit.

What are the three ways to look at angel investing profitability data?

As an overall asset class, considering many angel investors.
As an individual angel group or angel fund.
The profitability of an individual angel investor, such as yourself.

How profitable has angel investing been in the period leading up to 2007?¹

This study examined the results from of 1,137 exits ((acquisition, IPO, or company closure) from 539 angel investors in angel associations over a 20-year period, with most of the exits occurring after 2004. The average return was 27% (excluding out of pocket costs and assuming zero value for the investors’ time).

Due diligence had a large impact on investor capital returns.

Angels who spend less than 20 hours have an average return of 1.1X capital.
Angels who spend more than 20 hours have an average return of 5.9 X capital.
Angels who spend more than 40 hours have an average return of 7.1 X capital.

Investor knowledge of the portfolio company’s industry had a large impact on capital returns.

Investors with at least 14 years of relevant industry experience had double the capital returns of investors who did not have relevant industry experience.

Ongoing involvement with the portfolio company (e.g. coaching and mentoring, being the lead investor, serving on the advisory board or board of directors) has a large impact on investor returns.

Angels who interacted with the company twice a month achieved a 3.7X return.
Angels who interacted twice a year received a 1.3X return.
Interacting more than twice a month does not improve returns. The quality and type of interaction was more important than frequency.
52% of all exits were at a loss.
7% of the exits returned more than 10 times the money invested, and accounted for 75% of the total returns.
39% of the investors had portfolios that lost money.
The top 10% of investors earned 50% of the returns.
45% of the startups had no revenue when they received the angel investment.

How profitable has angel investing been in the period leading up to 2020? ²

The data scientists at AngelList analyzed 10,665 investor portfolios (April 2020). The analysis showed that the realized and unrealized IRR for all the investments is 15%. The 2007 study above only examined realized IRR.

The median IRR return for investors is heavily driven by the number of companies in their portfolio.

50 company portfolios had a median IRR of about 10%; 11% of these investors lost money.
20 company portfolios had a median IRR of about 7%; 16% of these investors lost money.
10 company portfolios had a median IRR of about 6% 32% of these investors lost money.
1-5 company portfolios had a median IRR 0%.

What has been the performance of some individual angel funds in the U.S. in 2020?

The ACA (Angel Capital Association) Investor Insights report for 2020 shares insights from some large, long established U.S. angel groups. My article does not name those groups. You should refer to the report if you wish the names of the groups. The report is available to members of the ACA.

Angel group A analyzed 159 outcomes (exits and shutdowns) since 1997.

#1 A large portfolio is key to large returns

Equal sized investments in all the companies would have generated 4.8X return.
3 of the 159 exits generated 74% of the total return.
Monte Carlo simulation showed that only 26% of investors with 5 company portfolios would have obtained 4.8X return
Even with a portfolio of 50 companies, there was only a 37% chance of achieving 4.8X return.

#2 Large returns require investors being able to wait 10 years.

It takes 4.5 years for investors to get their initial investment back. There are lots of failures in the first few years.
It takes 10 years to achieve 4.8X return. After 10 years, there is a very modest increase in returns.

Angel group B analyzed the return of their 27 members over 20 years.

A large portfolio is key to large returns. Investors with 25 company portfolios had 4.5 times the IRR return of investors with 1-4 company portfolios.

How profitable has angel investing been in the United States as of January 1, 2025?

AngelList published the results of the funds on their platform. The IRR includes both realized and unrealized gains.

Angel funds launched in 2017: 25% had IRR less than 13.9%; median was 19.7%; 25% had IRR of over 29.2%. But the actual cash distributed to investors 75% of the time was less than 64% of their investments. It takes time to make a cash profit.
Angel funds launched in 2021: 25% had IRR less than -3.0%; median was 1.2%; 25% had IRR of over 6.4%. But the actual cash distributed to investors 75% of the time was less than 2% of their investments. This illustrates the J-Curve. In he first few years of a fund, portfolio companies need capital to grow, which results in future profits. And portfolio companies fail in the early years.

How useful are performance reports from angel groups?³

Published results for angel groups often don’t consider the timing and dollar amount of every individual investor action. Assumptions are made because the angel group members don’t share details for every transaction.
One example of the impact: an angel group reported a 12X return on investments in one company while the return for one individual investor was only a 1.5X return. The 12X return was if you invested day 1. The individual investor invested in a later round. The angel group analysis assumed that all investments were made on day 1.

You have the potential to make money as an angel investor if:

You or your co-investors have deep current relevant market knowledge of each portfolio company’s customers and market.
You devote significant time to due diligence.
You remain involved with the company post-initial financing.
You have the financial resources to create a diversified portfolio of at least 25 companies and to make follow-on investments.
You can wait 10 years to achieve a significant financial return.

You have the potential to make money as an investor in angels funds if:

You have the talent and time to assess fund managers and be able to pick future high performers.

What are your next steps?

Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people
Review your overall investment thesis e.g. what asset classes will you be investing in, why, and what expected returns (this includes volatility, and time to achieve returns)
Determine is angel investing would be a charitable activity or an asset class that is helping you achieve your overall investment thesis. Many angel investors are not interested in financial return, and their angel investments are not part of their financial return focused investment portfolio.
Define your angel investment thesis.
Determine if you have the skills, knowledge, and finances to create your own diversified portfolio or if you will invest with fund managers or if you will join a group of angel investors.
If you are investing with a fund manager, you must do due diligence. It is key to analyze their cash returns over 10 years. I have come across many funds that include unrealized returns. Unrealized returns are not cash in the bank. You will also have to assess their talent and processes. If the funds returns are driven by only one exit, you must determine if their overall results have been driven by luck or by knowledge, skills, experience, and processes.
If the fund manager is just starting their fund or has only been in operation for a few years, then you need to do more detailed due diligence, just as you would for any other startup. If you don’t have deep relevant experience in the fund industry, then you need some with that experience to work with you. Your due diligence focus will be on talent assessment and the fund’s investment thesis.
If you decide to invest via an angel investor group, you need to do due diligence. You need to assess whether the processes and talent will help you build and manage a profitable long-term portfolio. It is key to analyze the groups metrics and cash returns. One large U.S. angel group tracks 83 (yes 83) metrics for every investment made by a member. Some U.S. angel groups have detailed metrics regarding their members. If the group’s return is driven by one large exit, then you must determine if their overall results have been driven by luck. Assess which members have deep relevant industry experience aligned with your angel investment thesis. Assess the angel group processes. If you don’t already have deep relevant angel investing experience, then you need help from those who have that experience.

Footnotes

¹ Robert E. Wiltbank, PhD Willamette University, Warren Boeker, University of Washington, “Returns to Angel Investors in Groups, November 2007”

https://www.angelcapitalassociation.org/data/Documents/Resources/AngelGroupResarch/1d%20-%20Resources%20-%20Research/ACEF%20Angel%20Performance%20Project%2004.28.09.pdf

² “How portfolio size affects early-stage venture returns”, Nigel Koh and Abfraham Othman, AngelList, https://angel.co/pdf/lp-performance.pdf

³ “How much do angel investors earn?”, DC Palter

https://entrepreneurshandbook.co/how-much-do-angel-investors-earn-1bc06cc8166f#:~:text=Conclusions,from%20a%20single%20huge%20exit.

⁴ The state of U.S. early-stage venture and startups: 2024, Angellist January 28,2025

https://www.angellist.com/blog/the-state-of-us-early-stage-venture-startups-2024The

What further reading should you do?

Are you an angel investor or a gambler?

This article contains an example of the capital you need to be an Angel investor.

https://koorandassociates.org/selling-a-company-or-raising-capital/are-you-an-angel-investor-or-gambler/