To be honest, with all the news of VCs minting money on early-stage investments, we all feel like getting a piece of the tech pie. Right? Buuut investing in startups requires you to have knowledge, network and of course CAPITAL. So, let's try to find out if you're cut out to be an Angel Investor, financially speaking:
Let's say your net worth is X
Now, what % of this net worth do you invest in startups?
Financial giants JP Morgan and Merrill Lynch say that 15-30% of your investable assets should be invested in alternative asset classes. So, for the sake of calculation, let's take an average of 25% (or 1/4th) of your net worth as the target.
But what do we mean by Alternative Asset Classes? Think of them as the cool kids at the investment party: hedge funds, real estate, private debt and private equity. So, let's say you invest 33% (or 1/3rd) of your total allocation to alternative asset classes, into private equity or startups.
But do you put all that money in 1 startup?
To dodge the “Oops, my startup sank!”, you would ideally like to create a portfolio of such investments into startups.
So, what's a failsafe number of startups you should bet on?
A Wall Street Journal article by Harvard Business School lecturer, Shikhar Ghosh says that 3 out of 4 funded startups never return any cash to investors. Which means, to create a failsafe portfolio you should target to invest in AT LEAST 4 startups.
And how much should you invest in each of these startups?
So, to answer this, we crunched some numbers. We collated more than 600 investments made by some of the leading Angel Investors of India to arrive at a benchmark value. The median ticket size of Angel investment came to an even ₹20Lakh.
Alright, now that we have an idea of your average cheque size, the minimum size of your portfolio and some idea about what % of your net worth you should allocate to this high-risk-high-return asset class, we can solve for X.
#$%&@*$*###*($@$*&%#@#
Turns out, if you have about ₹10 Crore worth of assets, you're cut out to be an Angel investor. Financially speaking at least.
Of course, you can be more bullish and increase your fund allocation to this asset class, or you can be more conservative and increase the size of your portfolio just to improve your chances of success. Do as you will and set a goal for yourself.
Find answers to other questions relating to Angel investing in India:
This article is a part of the Jun'24 edition of our Startup Newsletter. Here's the complete publication:
