Power Law Investing

The idea of power law investing is that your single best investment will be more valuable to you than all the rest of your investments put together. Your second best will be better than three through infinite put together.

This concept is often applied to startup/angel investing and is opposed to "regular" investing, where an investor tries to get returns on a much higher share of individual investments. Angel investing is a business of hitting home runs.

The key question: "How big could this be if it works?"

Then, after that you can ask:

• "How can this go wrong?"
• "Can I see this market supporting this founder, this idea, and this company?"

But be careful not to ask "How could this go wrong?" first because it will filter out the good businesses. The good businesses often sound like a bad idea but are actually good businesses.