Spread your investment across multiple companies. Approximately 25% of all small businesses fail in their first year (see http://smallbiztrends.com/2008/04/startup-failure-rates.html). Some are more prone to do so than others (see http://smallbiztrends.com/2012/09/failure-rates-by-sector-the-real-numbers.html). This may result from changing market conditions, bad timing, competitive pressure, unsustainable economics or the inability to sustain product market fit. Each investor must recognize this high incidence of failure, which exists regardless of the quality of the skill of company management, and the quality of management’s business plan, before investing and recognize and be prepared to lose their entire investment.
Investors themselves can significantly reduce risk by recognizing that 80% of a typical venture capital fund’s returns are generated by 20% of its investments (see https://blog.wealthfront.com/venture-capital-economics/). This analysis advocates for diversification and spreading smaller investment amounts over more early-stage companies (see HOW DO I DETERMINE WHICH COMPANIES TO INCLUDE IN MY PORTFOLIO?). iSelect’s minimum investment requirements allow investors a greater opportunity to spread their investment out over more early-stage companies (see ARE THERE MINIMUM INVESTMENT REQUIREMENTS?).
Limit the amount you allocate to venture capital. Also, due to the relative illiquidity of venture capital investments (see ONCE INVESTED, HOW CAN I GET MY MONEY BACK OUT?), you should not invest money in venture capital that you may otherwise need for the foreseeable future. Because companies in your portfolio may have subsequent equity offerings that allow current shareholders to purchase shares at a discount, you should consider setting aside some of your allocation for such opportunities. As always, talk with your financial advisor and put careful thought into what you want to do. What to invest in and how much to invest is entirely up to you.