Portfolio Construction Simulator

The right answer depends on your stage and conviction model. Concentrated portfolios (10-15 companies) can generate higher returns if you pick winners, but carry enormous risk of missing the power law entirely. Diversified portfolios (25-40+ companies) increase the statistical probability of capturing an outlier. Most institutional seed funds lean toward diversification (25-30 investments), while Series A funds can afford concentration (15-20) because their companies are further de-risked.

Most seed-stage funds target 20-30 initial investments, which provides enough diversification to capture power law dynamics while maintaining meaningful ownership positions. With fewer than 15 investments, you need exceptional selection ability to generate top-quartile returns. With more than 40, you may struggle to add value to each company and risk becoming a passive index fund. The sweet spot depends on your fund size, check size, and how actively you support portfolio companies.

The standard allocation is 40-60% for initial investments and 40-60% for follow-on reserves. A 50/50 split is the most common starting point. Under-reserving (below 30% reserves) means you can't participate in your winners' follow-on rounds, missing the best risk-adjusted deployment opportunities. Over-reserving (above 70%) means too few initial bets for adequate diversification. Plan to follow on in your top 30-50% of companies.

Recycling means reinvesting early exit proceeds back into new investments rather than distributing them to LPs. If a portfolio company gets acquired in Year 2 for a 3x return, recycling those proceeds lets you make additional investments beyond your original portfolio plan. Most LPAs allow recycling up to 100-120% of committed capital. It effectively increases your investment capacity and number of bets without raising a larger fund, though it extends the fund's J-curve.