Venture Portfolio Construction
Venture portfolio construction is how a venture manager designs the portfolio—check sizes, number of bets, ownership targets, follow-on reserves, and concentration into winners.
Allocator relevance: Often determines outcomes more than “deal quality”—because venture is power-law and ownership math drives returns.
Expanded Definition
Venture returns are driven by a small number of breakout companies. Portfolio construction determines whether a fund can capture those outcomes: initial position sizing, whether the manager has pro-rata rights, how reserves are allocated, and how aggressively the fund concentrates into winners. Construction also includes stage mix (pre-seed/seed vs Series A+), sector focus, and pacing.
Allocators evaluate venture portfolio construction to understand whether the manager’s strategy can realistically produce top-quartile net outcomes.
How It Works in Practice
Managers set target number of initial investments, target ownership ranges, reserve ratios, and follow-on decision rules. They monitor dilution and adjust reserves deployment based on company performance and access.
Decision Authority and Governance
Governance defines reserve usage, concentration caps (or intentionally allows concentration), and how exceptions are handled. Weak governance leads to overfollowing mediocrity and underfollowing winners.
Common Misconceptions
- More deals = more diversification = better outcomes.
- Ownership doesn’t matter if you “pick well.”
- Reserves are optional in early-stage venture.
Key Takeaways
- Ownership + reserves drive venture outcomes.
- Concentration into winners is strategic, not accidental.
- Discipline prevents dilution and portfolio noise.