Intro To Angel Investing | Lecture #9 | Build Your Portfolio & Support Your Investments - Taught by Garry Johnson III
Dear Students,
Remember, as an investor, you should not expect to get rich or become wealthy after investing in just one or a few companies. You must think at scale, investing in a portfolio of many different companies across varying industries and stages to become diversified.
When building your portfolio, consider how much money you have to invest. For example, let's say you want to invest in 12 startups in 2023, with each investment being $100. This means that within the year, you have $1,200 to invest in companies. By the end of the year, you have 12 startups in your portfolio. This is a great goal because you're spreading your bets out.
Watch Me Teach Lecture #9:
Build Your Portfolio
As you build your portfolio, remember that you are in control of your investment thesis. You may believe in the potential of certain companies more than others. As you construct your portfolio, ensure that you've explored the options, done your due diligence, and created a diverse mix of investments.
Be cautious not to overreact to the performance of individual investments. For example, if you invest in one healthcare company that fails, it's not enough evidence to conclude that you shouldn't invest in healthcare anymore. Instead, base your decisions on patterns in your portfolio's performance.
It's important to consider the stage of the companies you invest in. Generally, the more mature a company is, the more likely it will have a liquidity event for investors. However, the potential for returns decreases as the company matures. Early investments in startups may be riskier but can offer larger returns if the company succeeds.
As an investor, spread your bets out and invest in companies at various stages. Sometimes, unique investment opportunities may pop up, but it's crucial to manage your expectations and resist the fear of missing out. Great investors are more selective in their investments, focusing on the best deals for their portfolio.
Remember that opportunities will always arise, and founders raise funds every day. Just because a business raises a lot of money quickly doesn't guarantee its success. Be measured in your approach, and don't throw money at every opportunity that comes your way. Strategize your investments throughout the year, considering the best deals and timing for your portfolio.
Building a diversified portfolio of 12 startups in various industries and stages requires careful planning, research, and strategy. Here are some steps to help you create a balanced investment portfolio using principles from previous chapters:
Determine your budget: Begin by establishing how much money you have to invest in startups. As previously mentioned, let's assume you have $1,200 to invest throughout the year, with each investment being $100.
Develop your investment thesis: Identify the industries, markets, and types of startups you're interested in investing in, based on your knowledge, interests, and beliefs. Your investment thesis should guide your decisions in selecting the startups for your portfolio.
Diversify across industries: To build a diversified portfolio, aim to invest in startups across different industries. This could include healthcare, fintech, edtech, clean energy, consumer goods, and more. Spreading your investments across various sectors helps to mitigate industry-specific risks and allows you to benefit from growth in different areas.
Diversify across stages: In addition to investing in startups from different industries, consider the stage of the companies. Investing in early-stage startups can be riskier but may offer higher returns if the company succeeds. At the same time, later-stage startups might have a higher likelihood of success but may offer lower returns. Balancing your portfolio with a mix of startups at different stages can help manage risk and maximize potential returns.
Conduct due diligence: Thoroughly research and evaluate each startup before investing. This includes understanding the market, competition, management team, financials, and growth potential. Use the knowledge from previous chapters to assess the startup's potential for success.
Consider the investment terms: When investing in a startup, carefully review the terms of the investment, such as valuation, share class, and voting rights. Ensure that the terms align with your investment strategy and goals.
Leverage investment platforms: Utilize equity crowdfunding platforms or angel investor networks to find investment opportunities in startups. These platforms can help you discover and invest in a variety of startups across different industries and stages.
Monitor your portfolio: Regularly review the performance of your investments and stay informed about the progress of each startup. This will help you make informed decisions about whether to continue investing in a startup, exit your investment, or adjust your portfolio strategy.
Rebalance as needed: As your portfolio grows and changes, it's essential to periodically rebalance your investments to ensure proper diversification. This may involve investing in new startups, exiting existing investments, or adjusting the weight of your investments in specific industries or stages.
Learn from experience: Building a diversified portfolio is an ongoing learning process. Continually assess your investment performance, learn from successes and failures, and refine your investment thesis and strategy accordingly.
By following these steps and principles from previous chapters, you can build a diversified portfolio of 12 startups in various industries and stages, increasing your chances of success as an investor while managing risk.
Support Your Investments
Being a value-add investor means you don't just contribute capital; you also provide other resources to help your portfolio grow. Here are four ways you can support the companies you've invested in:
Advocate for the company: Share investment opportunities within your community, especially if the company is actively raising funds. This increases awareness and helps attract more potential investors.
Become a customer: Support the business by purchasing their products or services. Whether they offer a software subscription, physical products, or other services, your patronage directly contributes to the company's growth.
Provide feedback: Offer constructive criticism by reviewing the company's website, marketing materials, and overall branding. If you find any issues, such as typos or bugs, inform the company so they can make improvements. This added value shows your commitment to their success.
Open doors for the business: Leverage your network to expand opportunities for the company. Connect them with potential partners, customers, or investors, and think about how you can contribute to their success.
One practical way to showcase your support is by adding the company you've invested in to your LinkedIn page. Under your title, you can mention that you're an angel investor in the company. This not only highlights your status as an active investor but also draws attention to the company, increasing its visibility and potential followers.
By promoting the company on your LinkedIn page, you're helping them attract more visitors to their website, particularly if they're raising funds. The more people who view their campaign, the better their chances of success.
As an investor, your goal is to help the businesses in your portfolio succeed. Consider how you can add value beyond just providing capital. By actively participating in a company's growth, you can take pride in knowing that you're contributing to their success in more ways than one.
Here’s a hypothetical example:
Sophia, an angel investor, had recently invested in a sustainable fashion startup called GreenThreads. She understood the importance of being a value-add investor and was keen on actively contributing to the company's growth. Here's how Sophia added value to GreenThreads:
Advocacy: Sophia used her social media presence to share news about GreenThreads, raising awareness about their eco-friendly fashion line. She also reached out to her contacts within the fashion and retail industries, highlighting GreenThreads as an innovative, sustainable brand. This led to a few influential fashion bloggers writing about the company, bringing in more potential customers and investors.
Becoming a customer: Sophia not only bought GreenThreads clothing for herself and her family but also recommended the brand to her friends and colleagues. She shared her positive experiences with GreenThreads' products, emphasizing their high quality and environmentally friendly nature. This word-of-mouth marketing helped boost the brand's reputation and attract more customers.
Providing feedback: As an experienced investor with a background in marketing, Sophia offered valuable insights into GreenThreads' branding and marketing strategies. She suggested improvements in their website design, making it more user-friendly and visually appealing. Sophia also provided feedback on their social media content, recommending a more consistent and engaging posting schedule to build a loyal online following.
Opening doors: Sophia leveraged her network to introduce GreenThreads to potential partners, including eco-conscious retailers and fashion brands. She also connected the startup with marketing experts and potential investors interested in sustainable businesses. These connections helped GreenThreads expand its reach, collaborate with like-minded companies, and secure additional funding for growth.
By actively supporting GreenThreads, Sophia played a significant role in the company's success. Her efforts not only helped the startup gain traction and build its customer base but also fostered a strong, trusting relationship between the investor and the company. Through her value-add contributions, Sophia demonstrated that an investor's involvement can extend far beyond financial support and significantly impact a company's growth and success.