The Case for Concentrated Portfolios in Volatile Markets

The conventional wisdom in venture is simple: spread
your bets. The power law dictates that most investments
will fail, a few will be mediocre, and one or two will
return the fund. The logical response, many argue, is
to maximize the number of shots you take.

We have never found this logic convincing.

Not because the power law is wrong — it is not. But
because the conclusion drawn from it misunderstands
what actually drives outsized returns. The companies
that return funds do not succeed because they were
lucky enough to be included in a large portfolio.
They succeed because someone believed in them deeply
enough to help them get there.

Why Concentration Works

Concentration forces discipline. When you have thirty
portfolio companies, you become a passive observer of
most of them. When you have ten, you become a genuine
partner. The difference in outcomes between those two
modes is not marginal — it is structural.

This is not a theoretical position. It is something
we have tested across three funds and twelve years.
The companies where we were most engaged — where we
took board seats seriously, where we made introductions
proactively, where we showed up when things got hard
— consistently outperformed the companies where we
were one of fifteen investors receiving quarterly
updates.

The math is straightforward. If you have a $200M
fund and twenty portfolio companies, you have $10M
average per company. If you have ten companies, you
have $20M average. That additional capital is not
just a financial difference — it is the difference
between being able to support a bridge round in a
difficult market and watching a good company fail
because you are overextended.

Volatility Rewards the Engaged

In stable markets, a diversified portfolio can look
deceptively healthy. Rising valuations paper over
a lot of passivity. In volatile markets, the
divergence between engaged and passive investors
becomes impossible to ignore.

When conditions turn, the companies that survive
are the ones with investors who have both the
incentive and the capacity to help. A founder who
can call their lead investor on a Saturday and get
a real conversation is in a fundamentally different
position than one who sends quarterly updates into
a void.

We saw this clearly in 2020 and again in the 2022
correction. Our portfolio companies navigated both
periods without a single failure. That is not luck.
It is the direct result of knowing each company
deeply enough to see problems before they become
crises, and having enough capital reserved to act
when we did.

The Discipline of Saying No

The harder side of concentration is what it requires
you to turn down. We pass on more opportunities than
we pursue. Some of those decisions have been wrong —
there are companies we looked at and passed on that
went on to build something significant.

We have never regretted staying concentrated to
pursue them. The opportunity cost of a missed
investment is bounded. The cost of a stretched,
distracted portfolio in a difficult market is not.

We invest the way we do because we believe the
best outcome for our founders, our investors, and
our own track record comes from doing fewer things
with more conviction and more engagement. In
volatile markets, that conviction compounds.