Startup

Key Takeaways

• “Startup investing” is often treated as a single bucket. Institutionally, it is a set of highly path-dependent exposures where outcomes are dominated by power-law returns, dilution dynamics, and follow-on capital decisions. The allocator’s focus is whether the investor has a repeatable sourcing edge and a disciplined approach to ownership and portfolio construction. From an allocator perspective, startup exposure affects: loss distribution (power-law outcomes), liquidity horizon (long duration and uncertain exits), dilution and ownership (follow-on rights and pro rata), and selection edge (access, networks, and thesis consistency). How allocators define startup risk drivers Allocators segment startup programs by: Stage focus: angel, pre-seed, seed, Series A; and the expected follow-on path Ownership strategy: target entry ownership and dilution expectations by outcome scenario Follow-on reserves: capacity to support winners and defend ownership Sourcing advantage: proprietary networks, founder access, operator edge, thesis sourcing Portfolio construction: number of bets, concentration limits, pace, and cohort design Value-add reality: measurable support that changes outcomes, not narrative claims Exit pathway realism: acquisition vs IPO probabilities by sector and vintage Evidence phrases: “seed checks,” “pre-seed,” “angel portfolio,” “pro rata,” “follow-on reserves” Allocator framing: “Is this startup strategy built to capture power-law outcomes with ownership defense—or is it undifferentiated seed exposure with fragile dilution and weak follow-on capacity?” Where startup investing sits in allocator portfolios early-stage venture sleeve for higher-risk, higher-upside exposure often paired with growth equity and secondaries to balance liquidity and risk shape frequently sized conservatively due to long duration and high dispersion How startup investing impacts outcomes winners drive the fund; ownership and follow-on discipline determine realized returns dilution can materially erode outcomes even when companies succeed access and selection matter more than broad exposure volume vintage timing and exit markets influence realization cadence How allocators evaluate startup investors Conviction increases when investors: show repeatable sourcing and entry access (not only syndicate leftovers) have clear ownership targets and defend winners via follow-on reserves report cohort performance transparently and explain decision-making under stress demonstrate a disciplined pace and construction (not opportunistic drift) provide evidence of value-add that is measurable (hiring, distribution, partnerships) What slows allocator decision-making unclear differentiation and sourcing advantage weak ownership strategy and under-reserved follow-ons overly high check count without discipline or learning loops inconsistent stage focus that creates unfundable gaps in follow-on paths Common misconceptions “More deals reduces risk” → more deals can reduce learning and ownership; power-law still dominates. “Follow-on is optional” → follow-on capacity often determines whether winners are monetized. “Brand equals access” → access must be demonstrated via entry terms and allocation quality. Key allocator questions What is your target ownership at entry and expected dilution by outcome? What % of fund is reserved for follow-ons and how is it deployed? What is your sourcing advantage and how is it measured? How do you decide when to stop funding a company? What is the realized vs unrealized performance by cohort/vintage? Key Takeaways
• Startup investing is ownership + follow-on discipline, not just deal flow
• Power-law outcomes require concentrated conviction and reserve strategy