Topic
Venture capital risk
The structural risks LPs accept in venture — and the ones that get mis-described as features instead of trade-offs.
What this means
Venture risk is the combination of illiquidity, power-law return distribution, manager selection risk, capital pacing risk, valuation/mark risk, and macro/exit-environment risk that defines this asset class.
Why it matters
Returns are not normally distributed. A handful of investments drive most of the outcome. Without honest acceptance of that shape, LPs misjudge pacing, reserves, and what diversification really means in a venture portfolio.
Common questions
- Can losses exceed committed capital? — Liability is normally limited to committed capital, but a single position can go to zero and committed capital is at risk in full.
- How is risk measured? — LPs commonly look at TVPI, DPI, IRR, loss ratio, time-to-DPI, and concentration metrics — together, not in isolation.
What to watch for
- Marketing that smooths J-curves into clean trend lines.
- Anchoring to paper marks before realized DPI.