Okay, so you’ve picked out a company that looks like it could be a winner, you’ve done your due diligence and discussed the deal with other investors, you’ve decided that you’re happy with the valuation; and you want to invest.
But how much should you invest?
There is no fixed school of thought on this. You will obviously be constrained by inclination, availability of funds and the upper and lower bound amounts that the company in question is willing to accept.
In truth, the amounts typically invested by angel investors vary enormously. In some cases it can be as little as £5000; it can also be as much as several hundred thousand and occasionally millions.
A few years back the average ticket size (i.e. how much invested per investor) was up towards £100-150k. This meant that angel investing was a venture undertaken only by a certain super-wealthy demographic. But in recent times, the investors who previously invested those large tickets (perhaps two a year), have tended to invest smaller tickets into a larger number of businesses.
The idea behind this of course, is to mitigate the risk by spreading one’s eggs in a selection of baskets.
People generally say that if you take a sample of ten startups (not random startups, but ones that could be considered investment-worthy), 1 or 2 will fail outright; 1 or 2 will do exceptionally well and make you a tonne of money; and the rest will do somewhere between okay and reasonably well.
So if you have a pot of £100k to invest in startups. You could put it all on one and hope to hell that it’s a winner in that 10-20% bracket of companies that do exceptionally well. You could split it in half and put £50k on two companies. Or you could put £10k on 10 companies and hope the statistics play out for you such that the winners make up (and much more) for the losses you make on the one or two that fail.
People have different preferences for this. Some think that if they believe in a company they should back it properly and wholeheartedly; others prefer to play the numbers and not aim for such big wins. It’s a choice that you may have to make.
Equally, some people just like to make one investment every so often in a company that they like and believe will do well. There is no rule to how much and often to invest.