Niche Funds Are Ok?
from the focus-focus-focus dept
The common wisdom these days is that diversification is a good thing. Then why is it that niche VC funds that focus on specific areas seem to get better returns than more broadly focused funds? This Red Herring article suggests a few possibilities. They say that the fund managers generally have more knowledge and experience in those fields, and thus make better bets - plus there is often less competition in the niche they're focused on. I'm not sure I believe all of this - and it certainly doesn't seem backed up by any actual quantitative research, but just anecdotally. The fact is, that without diversification, if you do hit it big, you'll hit it bigger than a diversified fund - since all your investments tend to go way up. However, if you don't hit it big you become a failure pretty quickly and disappear. The point of diversifying is that you give up a little bit of the upside potential in order to protect yourself (hopefully) on the downside.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
