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UNDERSTANDING RISK IN VENTURE CAPITAL

5 MIN WATCH

November 16, 2023

Understanding risk in venture capital

Peter Ackerson & Maggie Sprenger, Audere Capital
Venture Capital

Key takeaways

  • In the world of venture capital (VC), it is crucial to avoid being distracted by hype. Not all fascinating tech translates into profitable businesses. Effective VC managers will critically assess technologies on their monetization potential.
  • Portfolio managers help reduce risk in an investment portfolio by diversifying across companies. Effective portfolio construction can potentially mitigate company, macro, and vertical risks.
  • Returns from VC follow a “power law” distribution, with a high failure rate at the bottom end but a long tail of outlier returns at the other. This makes VC one of the only asset classes where “reversion to the mean” is a positive outcome.

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