Privat Capital holds a concentrated portfolio of 16-17 stocks. This strategy forces deep conviction in each position and ensures that winners have a meaningful impact on fund performance. Over-diversification can dilute both research focus and the potential returns from a fund's best ideas.
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The highly successful NZ Superfund derives its value from a few large, high-conviction strategic bets where it has a unique edge, rejecting the conventional wisdom of broad global diversification for large asset owners.
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The most successful venture investors share two key traits: they originate investments from a first-principles or contrarian standpoint, and they possess the conviction to concentrate significant capital into their winning portfolio companies as they emerge.
Many investors wrongly equate high conviction with making a large initial investment. A more evolved approach is to start with smaller at-cost positions, allowing a company's performance to earn its eventual large weighting in the portfolio. This mitigates risk and improves decision-making.
Even with big wins, a venture portfolio can fail if not constructed properly. The relative size of your investments is often more critical than picking individual winners, as correctly sized successful investments must be large enough to overcome the inevitable losers in the portfolio.
The firm's "Capital System" combines top ideas from various analysts and portfolio managers into a single fund. This structure deliberately avoids exposure to any single manager's low-conviction holdings, creating what is effectively a "best ideas" portfolio.
Thrive Capital's strategy of making a few large bets is not just for financial returns. It's an ideological choice to align with "life's work founders" for whom their startup is a portfolio of one. This ensures every win feels great and every loss hurts, creating true skin in the game.
The asymmetrical nature of stock returns, driven by power laws, means a handful of massive winners can more than compensate for numerous losers, even if half your investments fail. This is due to convex compounding, where upside is unlimited but downside is capped at 100%.
A successful seed fund model is to first build a diversified 'farm team' of 20-25 companies with meaningful initial ownership. Then, after identifying the breakout performers, concentrate heavily by deploying up to 75% of the fund's capital into just 3-5 of them.
In Vietnam, the best returns have come from a concentrated, hands-on model similar to a holding company, not traditional diversified PE funds. This approach allows for deep involvement in a few assets within a specific vertical, which is key to navigating the market and driving growth.
Thrive Capital rejects traditional VC diversification, instead making massive, concentrated bets on what it deems the best-in-class assets, like its $2 billion investment in Stripe. This 'buy the best' approach, focusing on significant ownership in top-tier companies, has been central to its outsized returns.
