For family office LPs, a clear assessment of both unsystematic and systematic risks is essential when building a venture capital portfolio.

How family offices can (must) strike a balance

When analyzing GPs, the focus must first be on unsystematic risks, those specific to individual managers, their firms, and their funds. This includes cultural alignment with the family office’s values, the strength and quality of their networks, their investment strategy, and their capacity for effective team building. These factors materially impact performance and are the primary source of alpha in venture capital. Crucially, these risks diminish as family offices diversify across more funds and GPs, thereby reducing exposure to any single manager’s execution risk.

However, diversification alone cannot eliminate systematic risks. These overarching risks relate to the entire venture ecosystem, including VC market cycles, inherent liquidity constraints, macroeconomic shocks, and evolving regulation. Such risks persist regardless of portfolio construction and require a long-term horizon, disciplined commitment across vintages, and active scenario planning.

Importantly, family offices must strike a balance, conducting deep qualitative due diligence on GP-specific characteristics while maintaining awareness of broader market dynamics. Overemphasis on macro risks (’what vintage to pick?’), a mindset carried over from public markets, can obscure where real value lies in venture capital: understanding and embracing unsystematic risks.