Ajo Angels Weekly Pulse

How Many Investments Are You Supposed to Make?

The most common thing I hear from new angels is that they want to be careful with their money. They are very focused on picking the right companies to invest in. 

That sounds like solid thinking, and of course it makes sense, especially for blck and brown investors who work hard for every dollar they make. The instinct is to protect it.

But there's a difference between being picky about the quality of each investment and being picky about how many investments you make. The first one is good fundamentally sound investing. The second one is where your brain starts working against you, and most new angels don't understand or even realize there's a difference.

The Old Way Used to Make Sense

There was a time when putting all your eggs in a few baskets was smart.

Benchmark put $6.7M into eBay in 1997 and got a 22% share of the company. eBay was doing nearly $6M in sales that year. It already had customers; Benchmark got that deal because there was almost nobody else competing for it. In that world, picking fewer investments made sense because it was easier to tell which companies were in a position to do very well in the future and which ones weren't.

What the Game Looks Like Today

Today there are thousands of investors chasing deals. A lot of early-stage investing happens before a company has a product; in those situations you're putting money behind a person and an idea. And in those situations, you may not have sales numbers to look at or even a product to test. That means a lot less info to tell if the company is doing well or if it's going to do well.

Here’s where staying true to sound investing fundamentals really matters. If a deal doesn't stand up to the test, then you should pass. But the mistake a lot of new angels make is using those high standards as a reason to limit themselves at 3 or 4 investments. Those are two different decisions, and getting them confused is a costly mistake. 

What the Game Looks Like Today

Today there are thousands of investors chasing deals. A lot of early-stage investing happens before a company has a product; in those situations you're putting money behind a person and an idea. And in those situations, you may not have sales numbers to look at or even a product to test. That means a lot less info to tell if the company is doing well or if it's going to do well.

So what do you look at when there's no product and no revenue? That's where sound fundamentals come in. You look at the founder first; do they understand the problem they're solving better than others? You look at the market; is the problem big enough that if they nail it, there's real money to be made? And you look at the terms; are they fair, or is the deal set up in a way that makes it hard for you to win even if the company does well? These are questions you can answer without a product or revenue. They require judgment, and judgment is something you can build over time and experience.

Here's where staying true to those fundamentals really matters. If a deal doesn't stand up to those questions, pass. But the mistake a lot of new angels make is using those high standards as a reason to limit themselves to 3 or 4 investments. Those are two different decisions, and getting them confused is a costly mistake.

The Part People Don’t Think About Enough

On any angel investment, the worst that can happen is you lose what you put in. So if you put in $5K, the most you could lose is $5K. 

BUT the top has no ceiling, no limit at all! We're seeing some investments come back at 10,000 times what was invested. One deal like that makes everything else in your portfolio look small; the rest of your investments don't really matter from a money standpoint anymore. This is why it's important to make many investments, versus just a few.

Research from Carta, a company that tracks startup data, shows that seed investors (people writing early checks into startups) typically need to be in 25 to 35 companies for their money to really work. Not 5 great picks, but twenty-five to thirty-five picks Cause at this stage it's super hard to just pick who will be winners in the future, cause um which one of you can see the future? You can't catch a 10,000x return from the sidelines; you have to be in enough deals that when one hits, you already have a piece of it

And I want to be super clear here, I understand that 25-35 seems like a lot of deals and maybe a lot of money. But if you do like 4 investments a year at like $1k - $5k per investment. In 5 years you could have a really nice sized portfolio. Your odds of having some awesome winners in a portfolio that size is really high. This is how the most successful angel investors do it.

A lot of new black and brown investors come into angel investing with a smaller amount set aside for it and feeling like every dollar counts. Which is true, of course every dollar counts, but not in a budget type of way. People’s instinct is to go slow, but it's really the opposite approach that gets better results. Angel investing is something where you get all of the benefits from doing more and doing it faster. This allows you to learn fast and get into more deals, both of which you need to be successful. It's like anything else you want to get good at; getting in reps teaches you things that you can’t learn from a book or class, and the more reps you get in the better and more comfortable you'll get.

A lot of us grew up in homes where there wasn't extra money sitting around, and for many of us, that still influences how we think about risk. 

But being too tight with how many investments you make doesn't protect your money; it just cuts your odds of being in the deal that could grow huge.  A lot of times the people who do well in angel investing are the ones who were in enough deals that they were in the right place at the right time when a deal hit big.

What AI Changes About All of This

One of the reasons people did a limited number of investments was time. Doing research on a company used to take days or weeks. Looking at the founder's background, the size of the market they're going after, who else is competing, how much it would cost to build what they're building; that work adds up fast, and it was a fair reason why going deep on fewer companies made sense.

AI tools have cut that time down a lot. What used to take days can now take a few hours. You can research a market, check a founder's track record, map out the competition, and stress test the numbers a founder puts in front of you, all faster than before. 

Staying on top of companies you've already invested in is easier now too. Tracking news, watching for changes in the market, keeping notes on where things stand; AI helps you manage all of that across a wider portfolio without it eating your whole week. The old argument for keeping things tight was partly about how much time a bigger portfolio takes to manage.

Where This Leaves You

Keep your standards high, use sound fundamental investing principles that I’ve taught you. If a deal doesn't hold up under scrutiny, pass on it.

But don't let that become a reason to limit how many investments you make. At the early stage, your job isn't to find the one winner. It's to make enough investments that when a winner appears, you’ve already got a piece of it. 

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The Backstory: Satellites today create huge amounts of data, but they cannot process most of it in space. Around 90 percent of compute power sits unused, and sending data back to Earth is slow and expensive. The founders saw that the compute already exists in orbit, it just is not being used properly, so they built Satlyt to fix that.

Key Innovation: Satlyt installs software on existing satellites that lets them run AI and process data directly in space. It filters out unnecessary data before sending anything down, cutting data costs by about 85 percent. It also lets operators share unused compute power and earn new revenue.

Funding: Raising $5M to scale deployments, onboard more satellite operators, grow the team, and expand partnerships across the space ecosystem.

The average person upgrades their lifestyle every time their income goes up, which is why many high earners still feel broke despite making more money than ever?

Cheers,

Abdul

Hey Hey… I’m Abdul I’m the chairman of Ajo Angels and Shujaa Capital and I’m on a mission to introduce angel investing to 25,000 black folks over the next five years. I’m doing this with the goal of narrowing the racial wealth gap as well as trying to close the billion dollar funding gap for black founders.

This information is for educational purposes only and should not be construed as financial advice. Angel investing involves substantial risk, including the risk of total loss. Consult with a qualified financial advisor and attorney before making investment decisions.