Wed, 27 April 2022
Asset Allocation Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. In angel investing, it’s important to set aside funds for startup investments. In most cases, investors dedicate 5%-15% of their discretionary funds to angel investing. There are several issues with asset allocation for angel investing compared to publicly-traded stocks, bonds, and mutual funds. Startup investments are illiquid as there’s no market for reselling. Transferring stock is greatly limited due to SEC rules. To achieve a gain, you must hold the stock for up to 7-10 years in most cases. Many startups fail completely and are tax write-offs. Determine upfront how much you want to invest based on 5%-15% of your portfolio. Divide by ten to get the total number of startups you can invest in. Divide the investment amount by 2 to get the initial investment per startup, leaving the second half for a follow-on round. Here’s an example: Let’s say I have a portfolio of $3.5M 15% of $3.5M yields $525K to invest in startups Dividing $525K by 10 gives me $52K per startup that I can invest in. Dividing the $52,500 by 2 means I can invest $26K for each startup leaving another $26K for each follow on investment. Start with 3 investments per year. It’s important to be selective. After a few years and some gains, you can re-invest some of the profits into more startups. There are tax laws that make it attractive to roll your gains from one startup investment into another. For more episodes from Investor Connect, please visit the site at: http://investorconnect.org Check out our other podcasts here: https://investorconnect.org/ For Feedback please contact info@tencapital.group Please follow, share, and leave a review. Music courtesy of Bensound. |