🤝 This week’s edition is sponsored by Alto

Access private market investments through a self-directed IRA built for angel investors who want simplicity, flexibility, and control over retirement capital. Alto helps investors put their retirement capital to work with greater control.

📰 Today's topic: Stop putting all your angel money on one company

There's a version of angel investing that feels very cinematic.

You find one company. You believe in it hard. You write your biggest check. And then a few years later, you're on a yacht.

The problem is early-stage investing doesn't work that way. And if you're writing $5k checks, concentrated bets are especially dangerous.

The math doesn't care about your conviction

Here's what most new angels miss: at the pre-seed or seed stage, you are mostly guessing.

There's no product-market fit. Revenue is thin or nonexistent. The team is promising, but "promising" is not a guarantee. 

The earlier you go, you're essentially guessing. Full stop.

That's not a knock on founders. Teams matter enormously. But even the best founder in the world can get derailed by things nobody controls. 

A pandemic. A key co-founder getting sick. A major customer blowing up. Timing. Market conditions. Technology curves nobody saw coming.

Skill matters…but so do factors outside of your control. And betting concentrated on one company is essentially a bet that everything will go your way.

What concentrated means

Traditional VC funds raise $100M and build portfolios of maybe 10-30 companies. 

The logic: we're great pickers, and if one hits big, we need to own enough to matter.

Sounds reasonable. But even the best funds in the world are frequently wrong when it comes to company selection.

For a new angel writing $5k checks, the concentration risk is more personal. If your one bet doesn't work out, you don't get to raise another fund. That money is just gone.

Why more small bets win

The alternative isn't complicated. Ready?

Write more checks into more companies.

Instead of one $25k bet on a single company, you could back five companies at $5k each. Or ten. The math on early-stage returns rewards breadth over depth because the upside on a winner is nearly unlimited.

Companies like Uber and Google returned 5,000x to 10,000x+ from the early stages. A tiny stake in one of those outcomes changes your entire portfolio.

Think of it like a public market index fund. Index funds beat more than 90% of active managers over time. 

Not because the managers are dumb, but because picking a concentrated set of equities is genuinely hard. The same logic applies to private markets.

The bonus stuff nobody mentions

There's another reason to write more checks, and it doesn't show up in a spreadsheet.

Every $5k check is a relationship with a founder. A window into an industry you'd never otherwise see up close. A node in a network of interesting, ambitious people. 

Over time, those connections compound in ways that are hard to quantify, but very real. 

The move

If you're new to angel investing, resist the temptation to find your one big bet. 

Build a portfolio instead. Write more checks. Look at more deals. Stay humble about what you can predict at the early stage.

The goal isn't to be right once. The goal is to be one of the investors that lasts the longest.

– Brian from Angel Squad

📕 Startup term you should know

Ever heard of Payback Period?

It’s the amount of time it takes for a customer to generate enough gross profit to recover the customer acquisition cost.

My insider scoop: You can be profitable and still run out of runway. If your payback period is too long, you're spending money on ads today that won't pay off for months - and that gap is a working capital problem. This is exactly where access to capital (equity or debt) becomes a lifeline. The ads work; you just need the cash to keep running them.

Overheard in SF…probably

“Customer churn is high, but Quibi raised $1.75 billion and died in 6 months. At least we've made it to month 7.”