Metrics & Performance
Basis Risk
The risk that a hedging instrument does not perfectly offset the exposure it was designed to mitigate.
Basis risk in venture capital context refers to the mismatch between a fund's actual portfolio performance and any benchmarks, indices, or hedges used to manage or compare risk. While more common in public markets, basis risk appears in VC when LPs use secondary market transactions or structured products to manage venture exposure and find the hedge doesn't track the underlying portfolio.
In Practice
An LP tried to hedge their venture exposure using a public tech index, but the index fell 30% while their early-stage portfolio was flat — classic basis risk.
Why It Matters
Venture portfolios are idiosyncratic and difficult to hedge. Understanding basis risk helps LPs avoid false confidence in risk management strategies.
VC Beast Take
You can't hedge venture. The whole point is embracing the variance.
Related Concepts
Further Reading
The Tax Benefits of Angel Investing: QSBS Explained
How Section 1202 QSBS can exclude up to $10 million in capital gains from angel investments — the requirements, holding periods, and how this tax benefit dramatically changes the return math.
Startup Equity Compensation Explained: Stock Options, RSUs, and More
ISOs, NSOs, RSUs, restricted stock — startup equity comes in many flavors. Here's what each type actually means for your compensation, your taxes, and your financial future.
Emerging Manager vs Established Fund: What's Different
First-time fund challenges, LP skepticism, smaller check sizes, the performance data—a clear-eyed comparison of emerging managers and established venture funds.
What Is a Venture Partner and What Do They Actually Do?
Part-time vs full-time, sourcing vs investing, carry allocation—demystifying one of the most misunderstood roles in venture capital and how to become one.
How Venture Capital Firms Actually Make Money
Management fees fund operations, carried interest creates wealth. The detailed math of a $200M fund, fee structures, and why fund size is the most important business decision a VC makes.
What Is a SAFE Note and How Does It Work?
A complete guide to SAFE notes for startup founders — how they work, key terms like valuation caps and discounts, common mistakes, and when SAFEs are the right fundraising instrument.
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