I invest my money in start-ups through crowdinvesting. That this is associated with a certain risk, should be well known. I can live with that. At the same time, in addition to the risks of the individual investments, there is still the concentration risk. Concentration risk means that the individual exposures are all highly correlated.
This correlation can be fed by many different characteristics: asset class, currency, investment instrument, counterparty, contract type, etc. To avoid or at least minimize this concentration risk, I have personally set up a limit system for myself. This consideration goes back to the portfolio theory of Markovitz . Accordingly, the risk of a portfolio can be minimized while maintaining the expected return through diversification.
For that I have set myself the following limits: Overall, I do not want to invest more than 10% of my portfolio in start-ups; At the same time, I do not want to invest in any platform with more than 2% of my portfolio. At the first limit, I am slightly over it and the second limit I have (clearly) exceeded in a platform. But in both cases I only invest now, if all criteria fit.
In addition, I still have country and currency limits at the portfolio level, but these are relatively irrelevant for the start-ups, as most of the companies I have invested in and invest in come from Germany and the investment is therefore settled in EUR. I have set no limits for these two characteristics.
I also have industry limits at the portfolio level. However, honestly, I do not look at the industries in start-ups as a) the investments per start-up are comparatively low (~ 0.1% of the portfolio value) and b) the development of the start-up is less dependent on industry development than with companies that already have a high market share.
In summary, my limit system for startups looks like this:
- Asset class <10%
- Platform <2%
- Individual investment <0.1%
- Countries, currency, industry only at portfolio level
So far, I have done well and I also think that I will stay with what may in some eyes low limits in the future, because I just do not have enough data available, such as investments in start-ups on the crowd long term, especially over an entire business cycle , develop in order to take more risk.