How Much Should You Put Into Angel Investing

Angel investing means putting money into very young companies, often before they have proven very much. Most young companies do not survive long enough to succeed, no matter how good the idea sounds at the time.

This is not a reason to avoid angel investing entirely. It is a reason to expect that many individual bets will not work out, and to plan your money around that reality from the start.

Because so many young companies fail, putting a large amount into just one or two companies is very risky. Spreading smaller amounts across many different companies gives you a better chance that a small number of winners can make up for the ones that do not work out.

This is exactly the same idea behind not putting all your savings into one stock. It matters even more here, because the failure rate for very young companies is much higher than for an average listed company.

A venture capital fund does this spreading for you automatically, since it invests in many companies using money pooled from many investors, managed by a professional team.

Direct angel investing gives you more control over which specific companies you back, but you take on the job of spreading your own money out, doing your own homework, and accepting that some of your individual bets may go to zero.

A sensible starting rule is to only use money you can fully afford to lose, split into several smaller amounts across different companies, rather than one large amount into a single company you feel excited about.

It also helps to treat angel investing as a small slice of your overall private-market money, not the main way you build wealth, given how uncertain any single young company's future really is.