Cash Requirements for a Broad Angel Investment Portfolio

new thoughts

David Cummings on Startups

Three weeks ago a friend reached out to me about investing in tech startups. Now, he’s a corporate guy and has never been involved in startups, yet he wants to put some of his hard-earned savings into risky tech upstarts. His question reminded me of Jason Lemkin’s great post Why You Almost Certainly Shouldn’t Be Doing Seed Investments. The idea is as follows: an angel needs a broad portfolio of angel investments to do well (the same reason Vanguard is such a great product for public equity investors), seed investments of $25k or $50k also need follow-on dollars, so to do angel investing right, you need at least $1 million of cash.

Let’s look at the math:

  • 20 investments at $25,000 each results in $500,000 (so, a portfolio of 20 startups)
  • 5 of the 20 make good progress, so an extra $50,000 is invested in each, resulting in another $250,000 (important…

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