Angel Investing Masterclass
Just to give a brief recap, in the last unit, we covered the concept of Portfolio Allocation in-depth. “Many years ago, the Mehras began their investment journey with a strong focus on stability and liquidity. Their portfolio initially comprised public companies, Real Estate Investment Trusts (REITs), and Exchange-Traded Funds (ETFs). These investments provided a steady income stream and the flexibility to buy and sell as needed, crucial for maintaining financial stability. They offer dividend-generating, liquid investments that ensure we have a stable source of income and the ability to respond swiftly to market changes.” Navya noted. Now Navya decided under a new strategy that they didn’t want to take any additional risk. They were totally risk averse and required regular liquidity. Navya decided to consult Rajesh about her investments. A question appeared in Radha’s mind. She asked “Rajesh why do Investors & Family Offices only stress on allocating 25% to Angel Investing? Can’t the amount of allocation be higher? Rajesh replied “Sarah, The answers to your questions about whether it should be more or less is a very personal choice. Both individuals and family offices have financial responsibilities towards their families. Being a more aggressive angel investor would limit their choices in the near term and they might not be willing to make those sacrifices yet. By maintaining a reasonable 25% allocation to angel investing, the Mehras ensure they remain deeply involved in this high-growth area without compromising their family’s financial security. This allocation allows them to build a portfolio of over 30 companies over 5-6 years, spreading risk and increasing the likelihood of success.” All case stories exemplified the art of strategic asset allocation. By combining traditional investments with a measured foray into angel investing, they crafted a portfolio that offers both growth and security.
In this unit, we aim to cover the concept of Asset Allocation in depth. Our first module covers the concept of how successful angel investors allocate assets. under which we’ll be dividing our topic into 2 segments dealing with both beginners as well as Family Offices. Let’s begin!
In the bustling world of finance, the art of balancing risk and reward is the hallmark of a successful investor. This story takes you through the journey of a seasoned angel investor who, over 15 years, has masterfully allocated assets to build a robust and diversified portfolio. This narrative is crafted to inspire both novice investors and family offices alike, highlighting the strategic choices that can lead to sustainable growth and stability.
Once upon a time, there was a budding investor named Radha. She was eager to dive into the world of startup investments but was unsure about ‘How successful investors allocate assets?’
As a beginner, she decided to contact her old friend and mentor Rajesh who was an angel investor himself. Rajesh decided to help Radha and explained using 3 case studies.
“Suppose there was a girl Sarah, aged 25 who required Rajesh’s assistance concerning starting her angel investment journey. Rajesh’s advice was simple. Sarah had to save a minimum of 33% and ideally 67% of her income as savings depending upon her lifestyle, which she needs to invest. Consider the 67% as a whole or 100%. The priority for Sarah was to secure her short-term goals like marriage or education etc. For that, you’ll have to invest anywhere between 25% to 75% in Liquid Assets that give you regular returns like Fixed Deposits, Gold, etc. Since Sarah is young, she has a longer time horizon to meet her goals. Her long-term goals could include family planning etc. So the remaining 25% can be invested in Private & Public Markets where 10% can be invested in Public Equity Markets in the form of ETF, Listed Stocks & Mutual Funds and remaining 15% in Private Markets.”
Radha inquired, can the ranges vary?
Rajesh replied “Of Course the ranges can vary. If an individual has high savings and small short-term goals, then they can divert even 40% to 50% towards markets by reducing investment in Liquid assets.”
Rajesh further continued “Take another case of Shubham who is a 40 years old working professional. He might be well settled with a happy family. So less likely that he’ll have any short-term goals. He might be planning only for long-term goals like maybe buying a new house or planning to make his kids study abroad etc. Keeping these goals in mind, it would be prudent for him to divert 50% of his investable savings towards liquid assets like FDs, Real Estate Investment Trusts, Bonds, etc. and the remaining 50% can be diverted toward the non-liquid assets out of which 25% can be invested in Public Market (listed Stocks, Mutual Funds, ETFs) and 25% can be invested towards Private Markets.”
In between Rajesh narrated his journey “I began slowly, investing in only 5-6 companies annually but ensured I am investing in companies who tick most of my investment criteria boxes, a topic that I'll delve later into. My main purpose was to ensure that I maintained a constant pace and establish a cycle of constant returns. Over the next 5 years, I was able to establish a portfolio of 30 companies and today my angel investment allocation consists of roughly 25% of my total portfolio.”
At this point, Radha was wondering ‘How do Family Offices allocate their assets?’
As has been the trend, Rajesh decided to narrate a story to explain this concept.
Mehra Family Office is a multi-generational family deeply rooted in legacy wealth management. This is a story of how they navigated the intricate landscape of asset allocation, balancing traditional investments with the high-risk, high-reward world of angel investing. Today, Navya Mehra heads the ₹100 Cr worth family office and she’s responsible for managing the investments of the family.
Rajesh prepared a plan for her under which the priority for Navya was to secure her family’s liquidity goals. For that, Rajesh advised Navya to invest around 75% in Liquid Assets like Bonds, Fixed Deposits that give regular returns and the remaining 25% in Markets out of which 15% can be diverted towards Private markets and the remaining 10% in Listed or Public markets.