You’ve been told a thousand times, in a hundred different ways, to diversify your portfolio. Don’t put all eggs in the same basket. And so on and so on. But you have only so many eggs you can put in baskets, so how do you decide how to distribute them? We’ve collected tips from seasoned investors and top VCs to give you an idea of how to bring some colour into your portfolio!
How to mix up your portfolio
‘Spray and Pray’
Most famously employed by VC superstar Ron Conway, this strategy means making a large number of smaller investments and then staying onboard for further rounds for the ones that prove successful. However, the godfather of Silicon Valley says you should still be selective and investigate thoroughly before you invest: ‘For every investment we make, we look at […] 40 companies. So we invest in one out of 40 companies.’ Leapfunder’s own investment specialist, Rutger Kemper, suggests a similar approach. ‘Invest 1.000 Euro in 5-10 different startups. Once your confidence grows, you can offer larger follow-up investments to your favourite companies.’
Look at the portfolio of VC giants like Andreessen Horowitz or Ron Conway. From Fintech to Airbnb, Social Networks to Health & Beauty: spreading your portfolio across different industries can help soften the impact should one or two of them suffer. If you’re stuck on what industries you should invest in, follow the advice of investor starlet Ashton Kutcher. ‘Invest in the things that you know.’ Think about the industries you know well from your work experience or out of personal interest. In familiar sectors it will be easier for you to tell which startup might be onto something big, saving you a lot of research time.
Another way to diversify your portfolio is by investing in companies in multiple countries to gain access to different markets. Even US investor Dave McClure, the founding partner of 500Startups, writes: ‘There is a ton of emerging markets and future growth in places outside the US, and supporting innovation and entrepreneurship in those places is a good business strategy that will very likely pay off over the next decade.’ Apart from these tempting opportunities, it might also help to soften the blow of an economic crisis in one of the countries in your portfolio.
Don’t overdo it
With the voices in your head (and on the internet, and among your fellow investors) constantly urging you to diversify or die, it’s easy to buy into anything for the sake of diversity. After you reach a certain level of diversity, the benefit you get out of your portfolio will not increase much further if you buy into increasingly narrow niches. And last but not least, make sure the size of your portfolio doesn’t make it unmanageable. You might easily miss out on important developments in one of the companies you are part of.
Eager to start diversifying your portfolio? Choose your fit from some of the hottest startups raising funding right now!