Know your fund cycle
Your funding cycle determines how much capital you have and how long you have to deploy it. Typically, venture capital funds have a 10-year life cycle, with the first five years dedicated to making new investments and the remaining five years to supporting and exiting existing investments. You should plan the pace and size of your investments based on your fund’s cycle and avoid over-committing or underutilizing your capital. You should also monitor your fund’s performance and adjust your strategy accordingly.
Follow the Pareto principle
The Pareto principle, or 80/20 rule, says that 80% of the results come from 20% of the causes. In venture capital, this means that some companies in your portfolio will generate the majority of your profits, while others will break even or lose money. You need to identify and focus on your top performers and allocate more resources and attention to them. You must also be realistic and honest about the potential and progress of underperformers and be willing to cut losses if necessary.
Diversify your investment portfolio
Diversification is an important strategy to minimize risk and increase your chances of finding winners. You need to diversify your investment portfolio across different sectors, stages, geographies and business models. You should also diversify your co-investors and syndication partners to leverage their expertise, networks and reputations. However, diversification doesn’t mean spreading yourself thin or following every trend. You must always have clear arguments and criteria to choose and evaluate your investments.
To build a relationship
Relationships are the foundation of venture capital. You need to build strong, trusting relationships with portfolio founders, co-investors, LPs and other stakeholders. You must provide value-added support, feedback and advice to your portfolio companies and help them overcome challenges and achieve important milestones. You should also communicate regularly and transparently with your LPs and report on fund performance and portfolio progress. You also need to connect and interact with the startup ecosystem, as well as research and evaluate new opportunities.
Learn and improve
VC is a learning process. You should continually seek feedback, data and information from your portfolio companies, co-investors, LPs and colleagues. You need to analyze your successes and failures and identify the factors that contributed to them. You also need to keep up with market trends, customer needs and technological innovations, and adjust your thesis and strategy accordingly. You should also seek professional and personal growth, while enhancing your skills, knowledge and thinking.
