| | APRIL 20258Some founders may believe their vision will enthrall the investors so much that they'll look past any kind of investment criteria.Unfortunately, that is not the case as most VCs practice smart investing based on their fund's investment thesis and chosen strategies.Understanding the principles of investor decision-making is a crucial element of entrepreneurship.Balancing Risk and RewardIt is known that 65% of venture capital deals return less than was invested in them. So VCs have their work cut out for them. How do they manage in such dire circumstances?Henry Kravis, a renowned venture capitalist, recommends carefully evaluating potential losses and achieving an optimal risk-reward tradeoff by: Conducting thorough due diligence Building a diverse portfolio Actively managing investments Staying informed about market trends Carefully planning exit strategies.Focus vs diversificationBy diversifying their portfolio while, at the same time, staying true to their investment thesis, VCs can greatly minimize their losses.A calculated and focused approach is surely a robust strategy in the hands of an investment guru. However, data gathered by Toptal shows that a diversified portfolio can seriously juice up the returns:UNDERSTANDING VC INVESTMENT STRATEGYBy Danil Kislinskiy, Founder & CEO, Go Global WorldOPINIONIN MYSector diversificationSpecializing in sectors such as SaaS technology, biotechnology, or AI tech grants VCs an in-depth expertise in these fields. It allows them to be more involved in key decision-making of their portfolio companies. However, this approach also makes them vulnerable to market fluctuations. To spread their investment risk and widen their pool of opportunities, VCs often aim to create a varied portfolio of startups.
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