Early stage investing is inherently risky and the vast majority of early stage ventures won't deliver the anticipated returns. At VentureFounders we actively encourage our investors to build a diverse portfolio of investments in order to reduce the risk of failure and give themselves the best chance of obtaining a blended level of return consummate with the risk they are taking.
Research conducted by the British Business Angels Association published a report with Nesta “Siding with Angels”.
The report demonstrates that the majority of returns in angel investing come from a relatively small subset of companies. Indeed, investors should consider that out of a balanced portfolio a large number of those investments won't be successful (56% of startups fail), some will deliver an average return and occasionally there may be an above average performer.
Therefore, in theory, spreading ones investments across a range of investment opportunities in different sectors and different stages of their development should increase the chances of delivering a level of return consummate with the level of risk that you're taking as an equity investor (2.2x money and 22% IRR is the industry average according to Nesta).
While there is no guarantee that diversifying your investments will deliver such returns. However, the general consensus is that by doing so it should lead to, on average, better returns when compared to not diversifying.