12 ms·
A simulation of angel investing, part 2
- reitzensteinm 16y agoAngel investors can expect favorable payoffs with only 10 deals, but it takes at least 20 investments to truly be safe. Taking this to heart might get dangerous. The benefit of going from 2 to 20 deals exists only if the quality of the extra deals remains high - but what are the chances of that happening? An angel that's doing a few investments would be cherry picking from a moderately larger deal flow, and so each extra deal would almost certainly be a step down in quality. I'd say that doing math like this is a bit of a leaky abstraction, and it could just as easily cloud judgement if not taken with a large grain of salt.
- gyardley 16y agoI agree that the quality of the deals won't remain constant, but I'm not certain the quality goes down with additional deals. Well-known angels have more and better-quality dealflow than lesser-known angels. When a round is oversubscribed, it's the well-known angels who are in it. And you only get to be a well-known angel by doing deals. Therefore I would expect some net benefit from doing more deals - up to a point, anyway.
- reitzensteinm 16y agoI agree that you're likely to increase your potential deal flow in the long term by staying active. I suspect you'd also learn a hell of a lot about angel investing too, and build your network which may be an asset to the companies you're investing in. All of which would have far more effect on the bottom line than spreading risk - it's just that, unfortunately, there's no simple way to build a model of it!