Portfolio construction is the intentional design of a fund’s investment mix—how many companies to back, at what stages, with what ownership, and how much capital to hold for follow-ons.

How it works

A $100M early-stage fund might target 25–30 core positions with initial checks sized for 10–15% ownership, reserving 50% or more of the fund for follow-on rounds in winners. A seed fund may take more shots with smaller initial checks and lighter reserve ratios. Construction ties to portfolio theory (VC)—accepting many losses to capture outliers.

GPs document construction in LP materials: sector caps, geography, check size bands, and co-invest policy. During deployment, pacing matters—concentrating too many deals in one vintage year can skew outcomes if macro shifts.

Why it matters

• Founders: A fund near full deployment may struggle to lead your Series B even if partners love the business.
• Investors: LPs evaluate whether construction matches the stated strategy and whether reserves support pro-rata rights across the portfolio.

Common mistake

Treating fund size as infinite capacity for new deals. Construction limits mean GPs pass on good companies when reserves or sector caps are exhausted.

Related ideas

See power law, spray and pray, and stage-focused fund.