Portfolio Construction: Embrace Risk on First Small Check

Short Description:
- Focus on finding and backing great entrepreneurs with expertise or insight but otherwise embrace market or technical risk. Find the deals that are non-consensus or out of favor so that you can own a high percentage of the company for a smaller first check.
Benefits:
- May provide asymmetric upside and combined with a larger portfolio (see More Investments for Power Law) can provide attractive overall returns even accounting for losses.
- May provide for larger ownership and lower entry valuations as companies may not attract as much interest in investing if high market or technical risk.
Trade-offs:
- If you are explicitly backing new or evolving markets, there is even less external validation or data for decisionmaking.
- If judgment about the founder(s) is even more central to the decisionmaking process, then it may be harder to train and scale.
Examples:
- True Ventures