Diversification. Where should I put my money in?

Diversification applies to startup investing because past results have shown that most returns in investing come from a small subset of companies. Startup outcomes typically follow a Power Law curve where the winners are far larger in magnitude than the other startup investments in a portfolio combined.

In theory, the more you spread your investments out across many companies the more likely you are to hit on a home run company which should more than offset the losses on companies in your portfolio that fail.

While there is no guarantee that diversifying your startup investments will work to make money, the consensus is that diversifying your startup angel investments should lead to on average better returns when compared to not diversifying.

Also, ironically, the more you diversify, the lower your odds of having extreme outlier performance on the profitable side as well. As you diversify, you will tend to regress to the mean. For this reason, some investors explicitly choose not to diversify. They may still invest in many companies across their portfolio to gain exposure, but may also put substantially more capital into investments they have higher conviction on.

• Diversification and the probability of independent events: advantages of diversification — StartupXplore
• Venture Capital Funnel Shows Odds Of Becoming A Unicorn Are About 1% — CB Insights
• The Truth about Diversifcation — Audrey Jacobs
• Venture capital portfolios: diversification versus conviction investing — Different
• Investing in AI: Balancing Diversification with Specialization — Hyper Giant