In the last article, we covered How confidently should an investor invest in companies that are outside his area of expertise.

In this article, we’ll discuss how to build an ideal Portfolio Size. Understanding your portfolio size for optimizing investment returns and managing risk. In an appropriately sized portfolio, ideally there should be 50 companies but realistically, the number would be between 20 to 25 startups only, which ensures diversification, reducing the impact of individual failures and increasing the chances of high returns. This strategic decision balances immediate liquidity needs against long-term gains, aligning your investments with your financial goals and risk tolerance.

As always, we’ll try to delve into detail and explain the two concepts using a story. So let’s begin!

Maya was an enthusiastic entrepreneur who had successfully exited her first startup in the e-commerce sector. Inspired by her journey, she became an angel investor to help other entrepreneurs achieve their dreams. She signed up for the Planify Angel Investing Masterclass to learn more about building a robust investment portfolio and making strategic exit decisions.

During the masterclass, the instructor Rajesh posed two critical questions: "What should be your portfolio size?"

Maya recalled her initial foray into angel investing, where she had invested in a handful of startups. Her portfolio was small and focused primarily on industries she was familiar with. However, she soon realized the importance of diversification and wanted to learn the optimal size for her portfolio to balance risk and reward.

The instructor, Rajesh, shared his insights. He explained that an ideal portfolio size for an angel investor typically ranges up to 50 startups but realistically an investor will be able to achieve only 20-25 startups. This size allows for sufficient diversification, spreading the risk across multiple ventures. By investing in various industries and stages, investors can enhance their chances of hitting a high-growth company while mitigating the impact of any single failure.

Rajesh also highlighted the importance of managing the portfolio actively. He advised that investors should continuously monitor their investments and be prepared to support startups with additional time, networking, mentorship, or strategic advice as needed.

Maya took this advice to heart and began expanding her portfolio, carefully selecting startups from different sectors, including fintech, agri-tech, and renewable energy. She found that this diversification not only reduced her risk but also provided her with exciting learning opportunities in new industries.

Armed with this knowledge, Maya made informed decisions about her investments. When one of her portfolio companies attracted VC interest, she carefully assessed the startup's potential and her own financial goals. In some cases, she chose to exit and reinvest her returns into new startups. In others, she stayed invested, riding the wave of growth alongside the VCs.

Maya's journey became a hallmark example at the Planify Angel Investing Masterclass. She shared her story with new investors, emphasizing the importance of a well-sized, diversified portfolio and the strategic considerations when deciding to exit. Her experience highlighted that while building a portfolio and making exit decisions can be complex, a thoughtful, informed approach can lead to substantial rewards and continued growth as an angel investor.