How VCs Build a Portfolio: Concentration, Diversification, and Where Your Cheque Fits

Every venture fund starts with a portfolio construction model — a plan for how the capital will be deployed across investments. The shape of that plan tells you almost everything about how the fund will behave: how many cheques they'll write, how big each will be, how much they'll reserve for follow-ons, and how concentrated their portfolio will be.

This article walks through how funds construct portfolios, the trade-offs in each strategy, and what it means for founders raising from each style.

The core decisions

A fund's portfolio construction comes down to four decisions:

1. How many investments. 15? 30? 60?
2. Initial cheque size. Range and average.
3. Reserve ratio. How much of the fund is held for follow-ons.
4. Pacing. How quickly to deploy the capital.

Each decision pulls in tension with the others. A fund that makes 60 investments tends to write smaller cheques and reserve less per company. A fund that makes 15 investments writes bigger cheques and reserves heavily.

Concentrated vs diversified

Two extreme styles, with most funds somewhere in between.

Concentrated portfolios. 15–25 investments. Large initial cheques and large reserves per company. Bet hard on each company. Examples: Benchmark, Founders Fund (varies by fund), some sector specialists.

• Pros: deeper relationships, more capital per company, reputation as a serious partner.
• Cons: each loss is more painful, less diversification benefit.
• Implications for founders: you'll get high-attention partner engagement. They need every investment to matter, so the bar to invest is high.

Diversified portfolios. 40–80 investments. Smaller average cheques. Examples: Hustle Fund, some pre-seed specialists, certain corporate venture vehicles.

• Pros: more shots, more learning, broader market exposure.
• Cons: less capital per company, often less hands-on support.
• Implications for founders: easier to get an initial cheque, but partner attention is more rationed.

Most funds land somewhere in between — 25–40 investments. A "balanced" portfolio.

The maths of "fund returners"

Why do funds make so few investments? Because of the power law.

A fund needs each investment to plausibly return the entire fund on its own (or at least a meaningful fraction of it). To return a $200m fund, you need $200m of proceeds from one investment. If a fund owns 12% at exit, that company needs to be worth $1.7bn.

If a fund makes 100 investments, the partners can't possibly maintain the level of engagement needed to back each one toward a $1bn+ outcome. So the fund either:

• Reduces the number of investments to focus.
• Treats most investments as "lottery tickets" with minimal engagement and leans hard into the few that work.

Different funds choose different responses. Both can produce great returns; both shape founder relationships differently.

Reserves: the hidden lever

The reserve ratio — how much of the fund is held for follow-ons — is one of the most important things to understand about a fund you're raising from.

A typical split for a seed fund:

• 40% to initial cheques
• 60% to reserves (follow-ons)

That ratio means: for every $1 of initial cheque, the fund expects to put $1.50 more into the same company across future rounds. They're betting heavily on doubling down in winners.

Some funds operate differently:

• 60/40 (initial-heavy): more cheques, less follow-on. Often pre-seed funds.
• 30/70 (reserve-heavy): focused, deep funds. Often multi-stage VCs at seed.

Why this matters to you: the fund's reserve strategy determines whether they'll lean in at your next round. A fund with no reserves left can't follow you to Series A. Their absence in your A round can hurt the optics.

Ask your investor directly: "What's your reserve ratio? What's typical follow-on support look like?" The answer is informative.

Pacing

The third axis: how fast to deploy.

A fund typically wants to invest its initial-cheque capital over 3–5 years. Faster than that, and the fund is taking too many bets on a single market vintage. Slower, and the LPs grow restless about deploying capital they committed.

Pacing affects you because:

• A fund that's behind pace ("we should have deployed 60% by now but we're at 40%") is hungry. They'll lean into deals.
• A fund that's ahead of pace ("we've already deployed 80% in 2 years") is selective or even tapped out.

Combined with the fund clock, pacing is one of the most useful predictors of investor behaviour.

Sector and stage allocation

Larger funds also allocate across sectors and stages internally. A multi-stage fund might commit:

• 30% of capital to seed
• 40% to Series A
• 30% to Series B+

If they've already deployed their seed allocation for the current fund, they're not investing more in seeds. If they're under-allocated, they're hungry.

Some funds publicly state these allocations; some don't. Asking directly often gets a useful answer.

What this means for picking investors

Portfolio construction is not just an internal fund concern. It directly shapes how your investor will engage with you.

Smaller portfolios = more attention, higher bar

Concentrated funds invest in fewer companies and engage deeply with each. Pitching them is harder; getting in is more valuable.

Larger portfolios = more cheques, less attention

Diversified funds will more readily write you a cheque but won't necessarily be deeply engaged. Useful for filling round capacity, less useful as a strategic lead.

High reserve ratio = strong follow-on partner

Funds that reserve heavily lean into winners. If you become a winner, they'll keep buying.

Low reserve ratio = you'll need to bring new investors next round

Some seed funds explicitly don't follow on. Plan accordingly: your A lead will be a new fund, not your existing seed.

Reading a fund's portfolio

Five minutes on a fund's portfolio page tells you most of what you need:

• Number of investments. Total. Plus how many in the current fund.
• Stage spread. Are most at one stage or spread across?
• Recent activity. When was the last new investment?
• Sector concentration. Are they thesis-driven or generalist?
• Follow-on rate. Do you see the same company name across multiple rounds?

This kind of fast research changes who you target and how you pitch.

The investors you want are the ones whose portfolio construction makes you a natural fit — where their cheque size is your round size, their reserves can carry you forward, and their portfolio shape gives you the attention you need. Mismatches are the source of most fundraising frustration. Avoid them by reading the portfolio first.