Angel Investing: How Much to Invest

Part 1 - Angel Investing: Basics and Becoming an Accredited Investor

Part 2 - Angel Investing: Starting Your Journey

Part 3 - Angel Investing: How much to Invest

Part 4 - Angel Investing: Evolving Roles

Part 5 - Angel Investing: Finding Deals and Adding Value

Part 6 - Angel Investing: Scaling Up

One of the most common questions for aspiring angels is “How much money do I need to start?” and closely related, “How should I structure my investments (how many deals, how big each)?” The truth is, you don’t need millions upfront, but you do need a sensible plan. Angel investing is a numbers game and a long game. Here’s how to think about your initial portfolio construction:

Budgeting and allocation: A general guideline from experienced angels and investor associations is to limit your angel investments to no more than ~5-10% of your overall net worth. This ensures that even if all your startup bets went to zero, your financial life isn’t ruined. For example, if your net worth (excluding your home) is $500,000, you might allocate at most ~$50,000 (10%) for all your angel investments. If you’re wealthier with $5 million net worth, you might earmark $250,000-$500,000 (5-10%) for angel investing. By capping your allocation, you protect yourself from overexposure to this high-risk asset class.

Within that allocation, plan to make many small investments rather than one or two big bets. Diversification is absolutely essential in angel investing. Startups are unpredictable – even top investors miss winners or back failures – so your best defense is to spread your bets across a portfolio.

Data shows that angels who invest in 20+ companies tend to have much better odds of hitting winners and achieving good returns, compared to those who invest in only a handful. In fact, one study found portfolios of 24-40 startups start approaching a “near risk-free” overall return profile (because the few big winners compensate for the many losses), whereas a couple of investments is almost like roulette. While “risk-free” is tongue-in-cheek (startups will always be risky), the point is clear: more shots on goal = higher chance to score a big win.

So, how many startups should you aim to invest in?