An angel investor diversifies her portfolio by investing $10,000 across 5 startups. If 2 fail completely, 2 return 5× their investment, and 1 returns 10×, what is her total return? - Carbonext
Maximizing Returns: Analyzing the Angel Investor’s Diversified Portfolio
Maximizing Returns: Analyzing the Angel Investor’s Diversified Portfolio
In the dynamic world of startup investing, diversification remains one of the most powerful strategies to mitigate risk while maximizing potential returns. This concept was beautifully illustrated in a recent investment scenario where a savvy angel investor allocated $10,000 evenly across five early-stage startups—$2,000 in each. Let’s break down the outcome to understand the full impact of this diversified approach.
The Investment Breakdown
Understanding the Context
- Total Investment: $10,000
- Startups invested in: 5
- Per startup investment: $2,000
Performance Outcomes
-
2 Startups Fail Completely
One investment returned $0.
Total loss: $2,000 + $2,000 = $4,000 -
2 Startups Succeed Significantly
Each returned 5× the initial investment.
Return per successful startup: $2,000 × 5 = $10,000
Total from both: $10,000 × 2 = $20,000
Key Insights
- 1 Startup Delivers a Breakthrough Return
Delivered 10× the investment.
Return: $2,000 × 10 = $20,000
Total Return Calculation
Adding up all outcomes:
- Failed startups: –$4,000
- 2 successful startups: +$20,000
- Standout success: +$20,000
Total Return = $20,000 + $20,000 – $4,000 = $36,000
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What This Means
Despite two failed ventures, this angel investor achieved a remarkable 8.4x return on her $10,000 portfolio—over three times her original investment. The outsized returns from just two of the five startups more than compensated for the losses, underscoring why diversification combined with strategic conviction is a cornerstone of successful angel investing.
Final Takeaway
Diversification across multiple startups allows investors to weather inevitable failures while capturing exponential gains from breakout successes. This example ($10,000 invested across five startups yielding $36,000 total return) proves that a well-distributed strategy in early-stage tech can generate transformative financial outcomes.
For aspiring angel investors, spreading risk across multiple opportunities—and staying focused on high-potential outliers—can turn modest capital into significant returns.
Keywords: angel investor portfolio diversification, angel investment returns, startup investment strategy, $10k angel investment portfolio, diversified startup investing example.
