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The Little Book of Venture Capital Investing: Empowering Economic Growth and Investment Portfolios by Wesley A. Whittaker, Louis C. Gerken

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Chapter Nine

Investment Process—Portfolio Construction, Monitoring, and Monetizing

I love the ability to work with very good managers, and to provide the right incentives for them, and truly become a partner with that management, and make that management take a long view.

—Henry Kravis, co-founder of private equity firm, Kohlberg Kravis Roberts & Co. (KKR)

Some Important Words on Portfolio Construction

Asset allocation and portfolio construction guidelines are absolutely essential to ensure that an investor’s dollar allocation to the VC asset class and its make-up are “right-sized/right-fit” to the intended investment holding period.

The first step in the process is to assess the investor’s financial resources and capability, their risk profile, and appetite to absorb risk.

Next is a decision with regard to the percentage portfolio allocation to the VC asset class. Although varying widely, investor-by-investor, your author has suggested an efficient frontier target of 12 to 15 percent.

In this and the two preceding chapters the investor’s prescribed selection criteria are discussed in detail. As discussed, VC is in most cases not a liquid asset class, so it becomes important to utilize a dollar-averaged approach towards making the allocation, initially targeting a five-year period, and thereafter continuing to make annual investment allocations to maintain the efficient frontier threshold.

It is also critical to add diversity to the portfolio, where 10 to 20 percent limits are ...

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