50 $5k Bets or 5 $50k Bets

David Cummings on Startups

Recently I was talking to a successful entrepreneur that wants to start doing some angel investing. As part of this initiative, he wanted to initially invest roughly $125,000 per year for two years ($250k total). He said he was looking at a variety of strategies and debating between two approaches:

  • 50 $5k Bets – Invest $5,000 in 25 startups per year with the idea that it’s incredibly hard to pick the winners, so having a diversified portfolio increases the chances of finding a couple that do well, and then doubling down on the winners. With so many investments, at such a modest amount, there wouldn’t be much time to give individual attention, but in a short amount of time it’d be clear which ones are doing well, and which ones aren’t.
  • 5 $50k Bets – Invest $50,000 in 2-3 startups per year with the idea that he’d pick ones where he can…

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