Final answer:
Angel investors typically look for startups with the potential to return 10 times their investment in five years, which is true. They are willing to risk substantial amounts of money on the chance of a startup becoming a major success to outweigh possible failures.
Step-by-step explanation:
Angel investors usually seek young startups with the potential for high returns, often expecting a significant multiplier on their investment within a relatively short period. While these expectations can vary, it is true that angel investors often target opportunities where they could potentially receive 10 times their investment over a five-year horizon. This high reward scenario compensates for the substantial risks involved in investing in businesses that may fail to thrive or even survive.
Early-stage investors are fully aware of the risks and understand that the landscape of startup success is quite lopsided: a few major successes can balance multiple failures. This approach importance of choosing startups with the potential for exponential growth, like historical case studies of Netflix or Amazon. Venture capital investment fluctuates annually, reflecting the volatile nature of the industry and the unpredictable success rates of new ventures.
For example, if an angel investor invests $100,000 in a startup, they would hope to see a return of $1 million within five years. This high return expectation is due to the fact that most startups fail, but a few successful ones can make up for the losses.