Wed, 27 April 2022
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.
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