Private equity investments are risky – says so right there in the disclosure. You could put $100,000 into a promising young startup only to see that company fold, get acquired at a reduced valuation, or otherwise toss your investment into thin air.

Clearly, there are returns to be had, or no one would ever invest in private equity, but how do you do it with any amount of confidence?

The answer: Diversification.

Of course, choosing investments wisely is a good start, but a startup needs more than just a great idea and a great team in order to be successful. The timing matters, as does the economy, the competitive landscape, and lots of other factors that are outside the control of the founding team or the investors. The things that make or break a startup are often things that no one could have foreseen. How do you compensate for that?

Diversifying Your Portfolio

It all comes back to diversification, and it’s one of the main reasons we built the MicroVentures platform. The average investor may not have the bandwidth, capital, or access to opportunity that would allow them to make the number of investments necessary to even out the odds. But our low investment minimums allow investors to participate in multiple opportunities, giving them the ability to spread the risk around.

Instead of putting all their eggs in one basket by investing $100,000 in one promising startup, our investors can put $10,000 into 10 different startups, or even $5,000 into 20 different startups. These companies may come from different industries, use different business models, and be at different points in the startup lifecycle – all of which contributes to diversification.

Some of those companies will fail. If we knew which ones, there would be no risk whatsoever – and likewise very little reward. But if you’ve decided to take on the risks associated with private equity, it makes sense to counteract that risk by casting your investments across a broader mix of opportunities.

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