Why I Treat Angel Investing as a Portfolio Strategy

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Last week, I said I was going to write about how I think about angel investing — not as a one-off swing, but as part of a broader, long-term wealth strategy.

TL;DR: Angel investing provides rational exposure to asymmetric, early-stage upside — and when structured correctly, it can improve portfolio outcomes without taking on debilitating risk.

Let’s dive into it.

Why This Matters

Angel investing offers something rare for most portfolios:
exposure to a largely uncorrelated asset class with asymmetric upside.

It is undeniably high risk. Many investments will fail.

But when handled correctly — sized appropriately and diversified broadly — angel investing has the potential to meaningfully improve long-term portfolio outcomes without introducing debilitating risk.

The mistake most people make is treating it as a bet.
The right way to think about it is as portfolio diversification across market stages.

Public Markets vs. Private Startups

Most people think “investing” means public markets — and for good reason.

You can open an account at JPMorgan Chase, Vanguard, Fidelity, or Robinhood, buy an ETF or stock, and immediately gain exposure to thousands of companies around the world.

Public markets are accessible, liquid, and heavily regulated.

But that accessibility comes with a tradeoff.

To be listed on a public exchange, companies must already meet strict requirements around size, reporting, governance, and stability. By definition, most public companies have already reached a level of maturity.

In general, this means:

Pros

• The business is de-risked relative to its early days

• Revenues, customers, and operations are relatively established

• Outcomes are more predictable at the portfolio level

Cons

• The most explosive phase of growth has often already occurred

• Returns are driven largely by incremental improvements, not step-change breakthroughs

These are generalizations, but directionally accurate.

Public markets are excellent at capturing the average growth of more mature businesses.

Private startups sit at the opposite end of that spectrum.

Early-stage companies are:

• Not broadly accessible

• Not diversified by default

• Highly fragile

Many will fail outright, but they do have positives to offer:

• Exposure to innovation at its earliest stages

• Highly skewed outcomes

• The potential for hockey-stick growth that simply doesn’t exist at scale in public markets

This asymmetry is the defining feature of angel investing.

The Key Insight

Public markets reward patience and diversification across mature companies.
Startups reward early exposure and diversification across outcomes.

Angel investing doesn’t replace public markets.
It complements them.

The question isn’t whether startups are risky — they are.
The real question is how to structure that risk so that failure is survivable and success is meaningful.

That’s where portfolio construction — not deal picking — becomes the edge.

Practical Application

This reflects how I personally think about portfolio construction, not a recommendation.

Step 1: Cap the Allocation

Keep angel investing to 5% or less of your portfolio.

If losing that amount would change your life, the allocation is too big.

Step 2: Diversify Aggressively

Angel investing only works as a portfolio.

Research summarized by the Angel Capital Association, based on 20 years of data from hundreds of individual angel investors, shows that meaningful diversification in angel investing doesn’t occur at 5 or even 10 companies — it only stabilizes once portfolios reach roughly 15–25+ investments, at which point median returns improve sharply and variance drops dramatically.

This is why venture capital is portfolio-first, not deal-first.

Step 3: Assume Most Will Fail

Underwrite every investment with the assumption that it could go to zero.

You’re not betting on any single company.
You’re designing exposure to a distribution.

Step 4: Keep the Core Boring

Your index fund allocation is the engine.

Angel investing is the optional attachment — not the foundation.

Who This Is For (And Who It’s Not)

This is for you if:

• You already invest consistently in diversified public markets

• You can lock up capital for 7–10+ years

• You’re comfortable with uncertainty in a small slice of your portfolio

• You’re an accredited investor

This is not for you if:

• You need liquidity

• You’re carrying high-interest debt

• A 5% loss would meaningfully change your lifestyle

The Takeaway

Index funds build wealth.

Angel investing gives wealth a chance to surprise you.

When sized correctly and diversified properly, angel investing isn’t gambling — it’s portfolio engineering.

A way to keep your base compounding steadily, while giving yourself exposure to outcomes that simply don’t exist in public markets.

That’s the lens I use.

One Last Thing

Some of you already know this, but I’m in the process of putting together a small angel network.

The idea is simple: we source and evaluate early-stage deals, then share them with people who may want exposure to startups as part of a broader portfolio strategy.

There’s no obligation to invest, no minimums, and no expectation that any single deal is “the one.” It’s very much portfolio-first.

If that’s something you’d like to learn more about — or if you just want to stay in the loop when opportunities come up — feel free to reply to this email. No pressure either way.

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