Cover Your Bases! Diversify your Investments

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Investing in startups is exciting- if you make the right choice, the potential reward is massive, but those who back the wrong venture (which is approximately 90% of VC investments) can face large losses.  Had you been an early investor in Waze, Playtika, or a host of other Israeli success stories, for example, you’d be laughing all the way to the bank today. The issue that plagues most investors, however, is knowing how to spot the Mobileye from the dud. Because of this uncertainty, investing in startups used to be considered a risky business and one to be avoided by all but the select few with enough cash to be able to take on the high risk. But things are rapidly changing.    Today, startup investment is more mainstream and is within the reach of a much wider pool of investors than in the past. If you’re planning on jumping in, here’s some advice that can help you minimize risk and increase your chances of success.

Use the Wisdom of Experience

Crowdfunding portals like InvestiNation’s offer curated, heavily-vetted investment opportunities meaning that you no longer have to “go it alone,” but rather can tap into the experience of experts. Because much of the heavy-lifting, background research, and due diligence on the startups has been done for you, your risks of choosing a bad egg are lowered significantly. In addition, you’ll be investing your money alongside other investors and venture capitalists into companies selected by experts who are also playing an active role in securing the company’s success. 

Don’t Put All Your Eggs in One Basket

Having a diversified portfolio is a practice that’s widely considered to be a safer way to invest. Diversifying your investments – otherwise known as “don’t put all your eggs in one basket” – means spreading your investments across different industries or types of ventures thereby reducing the volatility of your portfolio over time. In practice, this means making a number of smaller investments spread across a wider range of asset classes instead of sinking a lump sum into a single investment or a select few.

 

So what does a well-diversified portfolio look like? It all depends on what you want to achieve and how much risk you are prepared to take. Typically, you would allocate a modest percentage of your total investment amount to higher-risk investments like startups. Within the startup category, you also want to try and achieve as much diversity as possible in these following categories: 

 

  • Stage – Choose companies at a variety of different stages, from brand new offerings that show potential, to those that are already further along their trajectories.
  • Industry/Sector – There are so many exciting areas to invest in these days like agriculture & food technology, medical tech, fintech cybersecurity, e-commerce, and more. Try to invest in companies from a range of sectors. 
  • Location – Some investors think it’s a good idea to pick companies from different locations such as US, Israel, India, etc. This is a personal choice, and with the broad variety of startups in Israel at the moment, it is possible to achieve diversity across multiple fields even if you only invest in Israeli startups. 

 

As part of the selection process, read through the detailed company profiles included on the InvestiNation website to get a feel for the company’s potential and the rationale for investing. If you want to be more thorough, you can do some of your own research. A good practice is to invest in ideas that resonate with you personally and that you can readily appreciate the value of. 

How Much Should I Invest?

Deciding how much to invest is directly related to the amount of money you have available combined with your risk tolerance.

How Many Companies Should I Invest in?

You know you want to create a diversified investment portfolio, the question is how many companies should you invest in?

 

Opinions vary greatly on this matter and truthfully, there is no die-hard rule for success. The right answer seems to be somewhere between 10 and 30 depending on how much you want to invest and what areas interest you. 

 

SeedInvest recommends a portfolio of up to 25 companies while American serial entrepreneur and angel investor, Dave S. Rose suggests that 12 to 15 well-selected companies might be the sweet spot.  

A Cautionary Word

You are probably keen to start building your diversified startup portfolio and so you should be – there has never been a more exciting time to get involved in the startup scene, especially the Israeli startup scene. Still, it’s worth being aware that while there are many benefits to diversification, there is a downside too. By lowering your risk, you are also lowering your potential reward. As Warren Buffet said: “diversification may preserve wealth, but concentration builds wealth.” With his disposable income, he probably could afford to take risks that few of us can, but the point remains that you need to find the right balance that works for your investment goals and risk tolerance level.  


As one of Silicon Valley’s most successful entrepreneurs, Peter Thiel, says: “using the spray and pray approach is like treating companies and people as lottery tickets.” The best advice is to understand how much risk you are prepared to take and then do your due diligence (or let us do it for you) and choose companies to invest in accordingly.

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Why invest with InvestiNation?

Everyone is in search of “the next big thing,” that new company that is going to go far. But few actually have the time or ability to go out and find them. We’ve done all that hard work for you and present you with a selection of the most promising, pre-vetted companies from exciting up-and-coming technology fields.

Cover Your Bases! Diversify your Investments

Investing in startups is exciting- if you make the right choice, the potential reward is massive, but those who back the wrong venture (which is approximately 90% of VC investments) can face large losses.