Stage diversification

Spreading private-market positions across how mature the underlying companies are, from earliest to latest.

Example

Holding both seed-stage positions and positions in companies already generating significant revenue.

Important

Weaker than it looks. Earlier positions depend on raising another round and later ones on an exit market, and both of those are the availability and price of capital - one force wearing two labels.

Related terms

• Vintage year — The period in which capital was actually committed, which fixes the level of entry prices a position carries for its whole life.
• Correlation — A measure from +1 to -1 of how closely two assets have moved together over a chosen period. +1 is lockstep, 0 is no relationship, -1 is exactly opposite.
• Systematic risk — Risk shared by everything in a market - the economy, interest rates, inflation, currency, broad sentiment. Also called market risk.

Lessons that explain it

• Stage, sector and geography: where the spread is real — Portfolios are usually spread along the dimensions that are easy to label rather than the ones that determine whether two holdings fall together. This lesson is about telling the two apart. (11 min)
• Look at the whole portfolio, not just each company — Reviewing positions one at a time hides concentration by sector, stage, vintage and business model. A periodic portfolio-level view shows exposures no single company report reveals. (11 min)
• One cheque is not this asset class; twenty of them might be — The economics in this subject describe a portfolio of many small bets, not a single concentrated one - and somebody who can only make two or three checks is not really practising this asset class in any statistical sense, whatever it feels like while they are doing it. (9 min)

All 578 terms in the Investing glossary