“The Denominator Effect: How Funding Strategies Can Impact Your Financial Success”

Investing in early-stage startups can be a risky endeavor. It’s difficult to predict which deals will yield significant returns. That’s why it’s crucial for investors to have a diversified portfolio, or what I like to call “shots on goal.”

The concept of shots on goal is simple. Imagine a fraction, where the numerator represents the deals you’ve completed and the denominator represents the total number of deals you’ve evaluated. By increasing the denominator, you increase your chances of finding those exceptional deals that drive the majority of your returns.

As a venture capitalist or angel investor, you likely have a strong network and come across many potential investment opportunities. You may even encounter deals that seem amazing. But it’s important to push yourself to see a larger number of deals. By doing so, you’ll develop a better sense of what truly exceptional opportunities look like.

Let’s say you take 10 meetings and find 3 of them compelling. That’s a good start. But if you push yourself to see 100 deals over a 90-day period, you’ll likely find 4 or 5 that really stand out. And if you extend this thought experiment to a year and see 1,000 companies, you’ll probably identify 7 or 8 deals that are truly exceptional.

The key takeaway here is that venture capital and angel investing are numbers games. The more deals you see, the better your ability to distinguish good from great and great from truly exceptional. It’s crucial to have a high denominator to ensure you’re making informed investment decisions.

In addition to seeing a large number of deals, it’s important not to rush into making investments. The quality of your deal flow will improve over time, and your ability to identify the best opportunities will also grow. Patience is key in this process.

Lastly, I recommend focusing on specific sectors or industries. By specializing in a particular area, such as FinTech or Cyber Security, you can develop expertise and intuition over time. This focused approach allows you to spot patterns and make more informed investment decisions.

In conclusion, to build a successful investment portfolio, you need to see a large number of deals (shots on goal) and ensure those deals come from a vast pool of potential opportunities. By following these principles and continuously expanding your knowledge and experience, you increase your chances of finding those exceptional investments that drive significant returns.

[Photo credit: Joshua Hoehne on Unsplash]