Simulating Angel Investment: Kevin’s Remix

possibleinsight.com

Jeff Miller has done a couple of nice posts on “A Simulation of Angel Investing”. I think it’s terrific that Jeff actually asked the question and tried to answer it with simulation. However, his answer of 20 is way too low because of two key oversimplifications. Using a more sophisticated methodology, I’ll show that a better answer is 100 to 150.

The ideal solution would be an investment vehicle that can turn huge chunks of money into digestible seed-stage bites with a return that induces plenty of investors to participate. But here are some slightly scary statistics. 50% of all seed-stage startups fail and returns come disproportionately from the top 10%. As all you poker players in the audience will note, you’re making big bets with high variance. The natural question is, “How many bets should you place?”

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