Concentration Over Diversification Logic

“•Do not diversify excessively. We believe in concentrating our holdings in a limited number of companies in the belief that we will have a chance at superior results only if we take risks intelligently. Good investment ideas are rare and when we find one, we prefer to make”

“Only by getting the big decisions right can investment performance be maintained, so small positions … have virtually no impact on the portfolio as a whole and consume a great deal of research time.”

“This highly uneven pattern is not unusual: we see it in all our other funds as well. The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined”

“This is because venture returns don’t follow a normal distribution overall. Rather, they follow a power law: a small handful of companies radically outperform all others. If you focus on diversification instead of single-minded pursuit of the very few companies that can become overwhelmingly valuable, you’ll miss those rare companies in the first place.”