Startup investing is characterized by a high risk-return tradeoff. Typically, only a select few companies in any given portfolio ultimately succeed. Those that do not make it usually close shop, and those that do provide outsized returns. Here are some guidelines you should keep in mind when investing.
- Diversification, Diversification, Diversification. We recommend maintaining a well-diversified pool of assets – both across multiple startups as well as other non-correlated asset classes. If you are not a professional venture capital investor, it is not recommended to invest more than 3% of your financial assets in early stage companies. If you decide to invest in early stage companies, you should target a portfolio of at least 15 investments.
- Startup investing is not liquid and takes longer to realize returns. According to research from 2012, it takes an average of 5-7years for a startup in a venture capital fund’s portfolio to reach a liquidity event (either an IPO or an acquisition).
- Venture capital is an alternative asset class and does not behave the same way as traditional asset classes such as stocks and bonds. We recommend that new and experienced investors alike take some time to conduct their own research on the asset class as well as the startups they are targeting for investment. A+CROWD provides webinars as well as extensive company information so your investment decisions are as informed as possible.
- You have rights as an angel investor. Many of our A+CROWD portfolio companies will raise subsequent financing rounds. When this happens, consider whether or not to participate in future rounds in order to prevent your equity stake from being diluted. For benchmark purposes, we estimate that the typical dilution over the lifetime of your investment (if you do not participate) is around 50%.
One of the most powerful investing tools we offer is the ability to follow angel investors that you trust. When you invest through A+CROWD, you enjoy the benefit of coinvesting with top tier angels that mentor and provide added value to the company