What is the ideal number of companies for a successful start-up portfolio?
There have been a lot of studies on the odds of one company turning into a huge winner. Different studies come to different conclusions. But they’re mostly in the vicinity of 1% to 2%. The entire range is roughly 0.5% to 4%.
Many of these studies are based on companies that began raising in 2008-2010. The data comes from the venture capital world.
Here are the 4 key contributing factors to start-up portfolio returns:
1. Quality of deal flow
2. Deal selection
3. Maturity of start-ups or what stage they’re in
4. Number of companies in the portfolio.
For an ideal start-up portfolio size, aim for 40-50 companies. But the more start-ups you add to your portfolio, the better. The historic VC-based data says that with 100 companies, you should expect about 10 to give you valuations of at least $50 million. A 50-company portfolio would generate five winners, with two of them carrying valuations of at least $200 million. But this should represents the low end of your profit range because you are far better off being a 2021 crowd-funder than a 2010 early-stage VC investor. I think crowd-funders can do much better than VC-based data suggests. And the best way of doing better is to build a big portfolio.
Sven Franssen