For decades, experienced angel investors have intuitively used the following rules of thumb for investing in seed and startup companies:
* Home runs provide all the return on investment. In a typical angel investor’s portfolio of ten investments in seed/startup companies, half the companies perish with no return to investors, and an additional three or four companies return some capital or provide a modest return on investment. Investors hope these three or four companies will at least return the capital for the entire portfolio—all ten investments. Ultimately, only one or two of ten investments will strike it big and bring virtually all of the return on investment to the portfolio.