In playing with the
data from my previous angel diversification posts (here, here, 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:
Seedrs:
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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