How can Venture Capitalists build a diverse portfolio?

Investment criteria are the guidelines or parameters used by investors to evaluate potential investment opportunities. They serve as a framework for making informed investment decisions aligned with an investor's goals, risk tolerance, and investment philosophy

A investment thesis creates focus but boundaries at the same time which goes against the idea of diversity. Emerging and first time fund managers are particularly disadvantaged as they need to pursue niche, highly specialised theses to stand out during fundraising. After all, why would an LP back a new fund manager with the same thesis as an experienced one with a trackrecord? This disadvantage (coupled with diminishing share of capital going to 1st time managers) clearly show that Emerging Managers underperform the average and there's a clear downtrend if you look across a broad timescale e.g. since 2010.

Building a diverse portfolio is a strategic approach for venture capitalists (VCs) to manage risk and maximize returns. Diversification involves investing in a variety of companies across different sectors, stages, and business models. VCs should consider investing in startups at various stages of development. This could include seed-stage, early-stage, and growth-stage companies. Each stage presents different risk profiles and returns potential, contributing to a balanced portfolio. Look beyond traditional tech hubs to invest in promising startups from diverse geographical locations and emerging markets.

Defining criteria is essential to effectively evaluate potential investments and build a diverse portfolio. As business Angel, my thesis of investment is at least 1 female founder in the team, impact and innovation. After that I am looking at ???? 1-Market Potential: Assess the size and growth potential of the target market. 2-Team Capability: Evaluate the founders' skills, experience, and track record. 3- Product or Service Differentiation: Analyze the uniqueness and competitive advantage of the startup's product or service. 4- Revenue Model: Examine the startup's revenue model and potential for monetization. Evaluate whether the business model is sustainable and scalable, and assess the potential for generating recurring revenue. ??

- Invest in different industries, e.g., technology, healthcare, finance, and clean energy. - Diversify across stages: early-stage startups, growth-stage companies, late-stage ventures. - Explore varying geographic locations for unique opportunities and expertise. - Support underrepresented founders, such as women, people of color, and LGBTQ+. - Collaborate with other VCs, accelerators, and incubators for a wider pool of opportunities. - Implement a systematic, data-driven investment approach to minimize biases. - Educate and train the investment team to foster inclusivity and better decision-making. - Set diversity targets for industry, stage, location, and founder demographics, and measure progress.

Historically, most VCs have focused exclusively on primary raises as a way to get access to pre-IPO companies. As a result of the macro environment and the creation of platforms like Hiive, late-stage VCs can now get access to many pre-IPO companies through secondary transactions, often at material discounts to their last primary round. Whether you are averaging down your existing positions or are using secondaries to get your foot in the door with a company, it's a great way to differentiate your fund

Exploring different sources of deal flow is crucial to discover a diverse range of investment opportunities. Here are several strategies to accomplish this: 1-Networking: Build and maintain a robust network within the startup ecosystem. 2- Online Platforms: Leverage online platforms and databases dedicated to connecting investors with startups, such as Crunchbase, roundtable. 3- Incubators and Accelerators: look at the new batch. 4- Angel Investor Groups: Join angel investor groups. 5- Industry Events and Conferences: Attend events, conferences, and demo days to discover startups. By actively exploring these diverse sources of deal flow you can increase your chances of discoveting startups and building a good investment portfolio.

Diversifying our sources across many perspectives is equally important. This approach not only spreads risk but also exposes us to new and potentially lucrative opportunities that we may have otherwise overlooked. Leveraging various platforms and tools, such as databases, newsletters, podcasts, and events, enables us to stay informed and identify promising startups that align with our investment thesis. Ultimately, building a diverse portfolio requires a proactive and strategic approach to sourcing and evaluating investment opportunities. By exploring different sources of deal flow and information, venture capitalists can position themselves to capitalize on the dynamic and ever-evolving landscape of innovation and entrepreneurship.

- Actively seek out and support startups with diverse founding teams. Encouraging diversity in terms of gender, ethnicity, and background can bring a variety of perspectives and ideas to the portfolio. - Look beyond a single geographic region. Investing in startups located in different cities, countries, or even continents can provide exposure to diverse markets, regulatory environments, and cultural factors. - Diversify by investing in startups with different business models. For example, a portfolio might include software-as-a-service (SaaS) companies, e-commerce platforms, hardware manufacturers, and other business types.

muliple sectors and industries to mitigate concentration risk. Don't just focus on one hot sector like tech or biotech. Diversify into different areas like consumer, enterprise software, fintech, healthcare, etc. 2. Invest across different stages - early stage, growth stage, and late stage companies. 3. Invest across different geographies and markets. 4. Utilize fund investing to gain exposure to a pre-diversified portfolio managed by experienced VCs. 5. Consider special purpose vehicles 6. Take a portfolio approach by making numerous investments over time rather than concentrating capital in just a few companies.

- Explore thematic investing where the focus is on specific trends or themes. This could include areas like sustainability, healthcare innovation, or digital transformation. Thematic investing ensures a strategic approach to diversification. - Align the portfolio with the risk tolerance and strategy of the venture capital firm. Some VCs may focus on high-risk, high-reward opportunities, while others may prefer a more balanced approach. Diversification should align with the overall investment strategy. - Consider follow-on investments in successful portfolio companies. This allows VCs to continue supporting companies that demonstrate strong growth potential, contributing to both diversification and concentrated bets on winners.

- Actively engage with diverse communities and invest in building genuine relationships with underrepresented founders. Trust and rapport are crucial for successful partnerships. - Invest in companies whose mission and values align with your commitment to diversity and inclusion. This ensures a deeper alignment and shared long-term goals. - Leverage networks and relationships to access diverse deal flow. Establish connections with entrepreneurs, other VCs, and industry experts to explore opportunities in a wide range of sectors and markets.

- Stay adaptable and adjust the portfolio strategy based on changing market conditions, technological advancements, and economic trends. - Periodically review and reassess the composition of the portfolio. This involves evaluating the performance of existing investments, identifying areas for improvement, and making adjustments to maintain diversification. - Implement risk management strategies, such as setting exposure limits for specific sectors or stages. This ensures that the portfolio remains balanced and aligned with the VC's risk management objectives.

All investors need an investment thesis obviously but a fund's thematic is antithesis to portfolio diversity since it creates boundaries. Alternative investment structures. Syndicates specifically allow 'GPs' to pursue broader investment mandates and evolve with markets. They also have structurally superior economics over funds. The downsides with syndicates are capital control/predictability and AUM scale.

It could happen without putting borders in terms of location, time, money and most importantly on people. Ideas are the initiations.