An Overview of Portfolio Theory
Understanding investors’ perspectives on risk will provide insights into how they make investments, build their portfolio, and even evaluate your business.
Despite deep due diligence, and in most cases — especially among angels — a deep desire to provide the tools and resources necessary for a business to succeed, investors can’t always pick winners. Consequently, many aim to intelligently invest in multiple companies and build out a robust portfolio, with the strategy of helping them all achieve successful exits, but the knowledge that only approximately 30% will provide returns and an even smaller number will produce extremely high returns. Portfolio theory argues that a larger portfolio increases an investor’s chance of a high return on investment.
To better understand this theory, we have to take a look at the investing J-Curve. Basically, it shows that after investing in a large number of companies, the unsuccessful ones will fail early, while the big exits will take a long time. So the return on investment will drop when an investor begins investing and will only be worth more than the original investment after several years.
Investors aren’t always necessarily always looking for giant exits, but instead focusing on long-term returns. Smart investors want to invest in strong, growing businesses led by a capable team. You don’t have to be the next Google or Uber to get an investor’s attention, but you do need to have the growth, traction, and core base of power users to prove that your startup is in fact a venture.
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About Hyde Park Angels
Hyde Park Angels is the largest and most active angel group in the Midwest. With a membership of over 100 successful entrepreneurs, executives, and venture capitalists, the organization prides itself on providing critical strategic expertise to entrepreneurs and the entrepreneurial community. By leveraging the members’ deep and broad knowledge of multiple industries and financial capital, Hyde Park Angels has driven multiple exits and invested millions of dollars in over 30 portfolio companies that have created over 680 jobs in the Midwest since 2007.
About the Authors
Alida Miranda-Wolff is Associate Manager at Hyde Park Angels. Her role includes creating and executing marketing and communications strategies, planning and managing events, fostering and maintaining community and industry partnerships, and managing membership. Prior to joining Hyde Park Angels, Alida served as a manager, data analyst, and publication specialist at a multibillion dollar industrial supply corporation. She has led one of the most successful Kickstarter campaigns in Chicago history and worked with half a dozen startups in various marketing, content creation, and project management roles. Alida believes in creating valuable, spreadable multimedia content, and has done so as a freelance writer for several print and online publications.
Amutha Muthumukar is a marketing intern at Hyde Park Angels. Her role is to assess analytic tools and develop strategies to further HPA’s social media campaign. She also works to maintain community relationships and increase HPA’s community engagement. Previously, she has worked with startups on redesigning social marketing campaigns through data analysis.
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