Risk and Reward: The truth about diversification
It is a common misconception that investing in startups is for the uber-wealthy, venture capital and angel investing insiders; being exclusive and risky — an alternative asset class where losing is part of the strategy. Venture capitalists leaders highlight how often you lose before you win. Thought leader Fred Wilson of Union Square Ventures says, “Investing in startups is risky. If you make just one investment, you are likely going to lose everything. If you make two, you are still likely to lose money. If you make five, you might get all your money back across all five investments. If you make ten, you might start making money on the aggregate set of investments.” How Much to Invest That being said, no one will advise you to put a large percentage of your savings into early stage companies. However, if you allocate 5% of your overall portfolio into startup investments you can increase returns and reduce risk. According to a SharesPost whitepaper, if you allocate 5% of your investments to private growth companies, you can increase the returns of a traditional portfolio by...
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