Freitag, 7. Juni 2013

Crowdfunding: Diversification Matters

In playing with the data from my previous angel diversification posts (herehere, and here), I developed the best visualization so far of how to improve your angel portfolio with more investments.  Simply compare the cumulative probabilities of achieving given return levels for different portfolio sizes using historical AIPP angel data.
If this graph doesn’t convince someone, I don’t know what would: 


A core principle underlying the whole Seedrs approach is that investing in startups can be highly profitable so long as you have a highly-diversified portfolio.
This makes intuitive sense in any asset class where most investments fail but the ones that succeed can do so in a big way. And it’s also supported by the data: the “Siding with the Angels” report by Professor Robert Wiltbank (Nesta, 2009) shows just how skewed the distribution of returns can be and why that makes diversification vital.
We’ve now come across an interesting new visualisation that shows this in even starker terms, and we wanted to share it with you. Using similar research from a U.S.-based report written by Professor Wiltbank, Kevin Dick has demonstrated just how important diversification is by correlating the probability of a particular return with the size of the portfolio of startup investments:

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