

A simulation of angel investing, part 2 - jmillerinc
http://jmillerinc.com/2010/04/28/angel-investing-simulation-part-2/

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reitzensteinm
_Angel 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
I 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
I 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!

