Weirdly enough most of the folks with large funds (e.g. mid-sized VC firms) do not make a large number of bets because their MO is to take a board seat with an investment. Because there's an effective limit on the number of boards one can sit on and fulfill a fiduciary duty to each corporation, there are only so many checks the firm will write. They are further constrained by fund timing (having a few years at the start to deploy capital and generally ten years to return it). Worse yet, they need one big success that will return the fund in order to earn carry. So they have a fixed number of bets, one of which must make it really big in less than ten years. Needless to say with all of these constraints most VC funds fail to beat the public markets. Many VCs given these constraints follow the advice in this article and invest mainly in companies that already have good traction. The problem is that everyone wants to invest in these companies so those that get in either overpay or have some reason why they have gotten access to proprietary deal flow.

Angels that make small, passive investments can build very broad portfolios, wait patiently over long time horizons, and make money when even a single investment returns. Angels can afford to be wrong much more often and make much edgier bets. Nearly all seed funding these days is provided by angels.

Over a broad portfolio, that's where the returns are.

Background: started two companies, invested in 50+, advised 15+, run three funds/syndicates.

Sequoia, Andreessen, Bessemer, Greylock have hundreds of investments, not to mention the seed LP and scout programs. Yes, some of the really big growth stage funds make fewer, but larger investments but that’s a function of supply.

In a power law distribution or returns you need to make a large number of bets to be in the big winners because the median is often significantly less than the mean value.

Without arguing against the power law distribution (which is real and measured), the discussion here is more about vehicle. VCs usually have an LPA that positions the fund as "smart money" (justifying the management fee and carry) and therefore coupling investment with active company involvement which must by definition hinder the quantity of investments made.

The above mentioned funds are longstanding and extraordinarily successful series of funds - an individual fund typically doesn't make more than 30 or so investments. There are certainly seed funds / programs like 500, YC, and Right Side Capital that use different mechanisms (notably: passive investment) in order to deploy more bets. The approach was arguably pioneered by Ron Conway who was at the time derided for being "spray and pray" but was later found to have exceptional returns due to the efficacy of "black swan" investing - which is to say that pretty much all of the signals that one believes confidently are good markers of a successful startup are wrong in precisely the most important category-breakout cases. Consequently a humble investor desires to both invest in a large number of companies, realizes that their active involvement is likely to do as much harm as gain (witness returns on investor-controlled vs founder-controlled companies), and constantly questions their own assumptions with portfolio performance data.

But an overall model / LPA that forces you into a "smart money" model will keep you from operating in this way.

This is where the advantage of the angel investor comes in - to take a bet and to put the Venture back in Venture Capital.

The angle I press people on is: what macro trends do you believe to be true that the market doesn't realize yet but probably will in the next decade? What companies are playing to that trend? Clear opinions on this can guide you to investments that outperform.

One example of this was the bet we took on Mexico seven years ago; VCs thought we were nuts because they only followed headlines talking about drug violence and hadn't kept up on rising household wealth and engineering+design talent. We had very little competition in finding the best deals in the country and those deals are now ripening - one is up 300x.

Perhaps this could be described as Buffet applied to angel investment - where is there fundamental likely value that isn't fully appreciated by the markets and where you have the patience and appetite to wait for the market to catch up?

I don't see a lot of VCs operating with this kind of flexibility to be truly thesis oriented.

I'm not trying to bash VCs here; for growth capital they are stellar - some businesses really do need tens to hundreds of millions of dollars to mature and that is where VCs shine. Not a lot of angel groups can pull together a $50m deal! There is room in this ecosystem for both angels and VCs; each much play to their strengths to succeed.

> One example of this was the bet we took on Mexico seven years ago; VCs thought we were nuts because they only followed headlines talking about drug violence and hadn't kept up on rising household wealth and engineering+design talent. We had very little competition in finding the best deals in the country and those deals are now ripening - one is up 300x.

It partially comes from discomfort of operating in foreign markets. Developing countries generally also offer an additional risk premium if you get it right (because there is unnecessary bureaucracy, corruption, etc etc)

As an example: I'm European. I think certain countries in Eastern Europe have particular investment opportunities that are super interesting (e.g. Ukraine) but I don't speak much Russian or Ukrainian and I don't fully understand the legal framework.

Even with good lawyers it is hard to go into a developing market you aren't at home in and don't understand and invest well.