The Perfect Portfolio of Startups

Fred Bamber was a successful venture capitalist for decades. In his career he invested in 75 startups including Interleaf, Q1 Labs and Volt Server. Fred now invests as an angel investor with stakes in such interesting companies as Pixability, ViralGains, SQZ Biotech and Streamroot. I had a chance to interview Fred recently and discuss his idea of the right size of portfolio when one invests in startups.

In Episode 5 of the Angel Invest Boston podcast, Fred contends that one should limit the portfolio to about twenty companies. He argues that a portfolio of twenty startups will have enough diversification to avoid fluky outcomes and yet allow an angel investor to work closely with the companies that really need the help. He believes that the additional value one gets from increasing diversification at that point is outweighed by the angel investor’s decreased ability to help portfolio companies succeed.

I argued for a larger portfolio size (I am now invested in about 42 startups) because I believe that more investments increase the chances of my portfolio containing a huge success such as FitBit, which I understand returned several hundred X to early investors. As I have mentioned in previous interviews, I don’t think it’s possible in advance to tell which company is going to be an Uber or AirBnb, i.e. it’s impossible to pick winners. I think one can reject investments that clearly have no chance of success for reasons such as a weak founders or limited market. However if capable and motivated founders are approaching a significant market, I am inclined to support them without regard to how many others are in portfolio.

If you are interested in this topic I invite you to subscribe to the Angel Invest Boston podcast where this matter has been and will continue to be discussed. To find us on iTunes you can go here. On Google Play you can find us from your desktop or laptop here.