Portfolio construction
Cheque sizing
How to set the size of a single investment from the total you are prepared to lose, working backwards rather than forwards.
Cheque size is usually decided the wrong way round. An angel meets a company, likes it, and asks how much they should put in. The right sequence starts much earlier and much colder: decide the total you are prepared to lose entirely, decide how many investments that must be spread across, and the cheque size falls out of the division.
The phrase "prepared to lose entirely" is meant literally. Angel investing has a high probability of total loss on any individual position and a real probability of a disappointing result across a whole portfolio. Money that is needed for anything — a house, school fees, retirement in under a decade — is not angel money.
Once the allocation is set, the arithmetic is straightforward and the discipline is not. The hard part is holding the size when a company is compelling, which is exactly when the reasoning is most likely to be abandoned.
Working backwards from the allocation
Start with total investable assets, then decide what proportion belongs in illiquid, high-risk private companies. Conventional financial advice puts that figure in the single digits for most people, and it is worth noticing how much lower that is than most new angels assume.
From that allocation, subtract the reserve for follow-on investments — typically 30% to 50% of the total, covered in its own chapter. What remains is what funds first cheques.
Divide by the number of first cheques you plan to make. That is your standard cheque size, and it is usually smaller than the number in your head when you started the exercise.
| Step | Calculation | Result |
|---|---|---|
| Total allocation to angel investing | decided in advance | £250,000 |
| Reserve for follow-ons (40%) | £250,000 × 0.40 | £100,000 |
| Available for first cheques | £250,000 − £100,000 | £150,000 |
| Planned number of first investments | target portfolio size | 25 |
| Standard cheque size | £150,000 ÷ 25 | £6,000 |
| Deployed over five years | 25 ÷ 5 | 5 investments a year |
An illustration of the arithmetic. The allocation, the reserve ratio and the number of investments are all your decisions to make.
Should every cheque be the same size
There are two defensible approaches. Uniform sizing puts the same amount into every investment, which is simple, removes the temptation to over-commit to a favourite, and reflects the honest fact that you cannot tell in advance which one is the outlier.
Tiered sizing uses a standard cheque for most investments and a larger one for a small number of high-conviction positions. It can work, and it requires a rule set in advance — how many large cheques per year, how much larger, and what specifically qualifies — because without one it becomes a licence to size by enthusiasm.
The evidence from the power law slightly favours uniform sizing for new angels, because conviction at the point of investment correlates less well with outcome than most investors believe. Tiering makes more sense once you have enough history to know whether your conviction has predictive value.
Minimums, and what to do when the cheque is too small
Companies often set a minimum investment, and it is frequently above what your sizing discipline permits. The tempting response is to stretch. The better ones are to invest through a syndicate or SPV where the minimum is lower, to ask whether the founders will accept a smaller amount — they sometimes will for someone useful — or to decline.
Declining is a legitimate outcome and worth saying out loud, because the alternative is a portfolio of six investments made at sizes chosen by other people. The sizing discipline exists precisely to be applied to attractive companies; applying it only to unattractive ones achieves nothing.
In short
What to take away
- Set the total allocation first, in money you could lose entirely without changing your plans.
- Reserve for follow-ons before dividing, not after.
- Divide by target portfolio size — the cheque is an output, not a decision made per company.
- When the minimum exceeds your size, use a syndicate or decline. Do not stretch.
From the decoder