Backing Fewer, Backing Better

Somewhere in a fifty-company portfolio sits company thirty-four. Its founders took the money because the terms were fine and the firm had a good name, and within a year they learn that a quarterly update is the full extent of the relationship. Nobody at the fund is neglecting them on purpose, since the portfolio was built on the assumption that one company carries the rest, and theirs has not yet shown it might be that one.

The belief that one company will carry the fund is so embedded in the industry that it has stopped being examined. It shapes fund sizes, portfolio construction, standards, and the relationship between investor and founder. And for the most part, nobody questions it, because when it works, it works loudly.

What it looks like when it does not work is quieter, and more instructive.

The Volume Trap

Spray-and-pray is the natural consequence of scale. When a fund is deploying hundreds of millions, writing thirty or fifty is simple arithmetic. The individual company matters less than the aggregate bet on the distribution of outcomes.

The problem is what that arithmetic does to the work.

Diligence thins and decisions become reactive, until the portfolio is full of companies that were interesting enough to back but never properly understood. Attention, which is finite, gets spread across too many situations to be useful anywhere. And founders, who needed a partner, end up with a shareholder who is quietly hoping they are the outlier.

That distance has costs. Some of them show up in the numbers eventually. Many of them never do, which is part of why the model persists.

Who Pays the Price

Founders feel it first. Capital arrives, but real engagement rarely follows. It becomes difficult to know where they stand with their investors, or what those investors actually believe about the business. In a portfolio built for volume, honest feedback is a scarce resource because honest feedback takes time, and time has been allocated elsewhere.

inherit the same uncertainty. Without a who is close to the company, governance becomes loose and information flow becomes unreliable. Limited partners, who are ultimately funding the entire exercise, are left hoping the math holds up, because they have limited visibility into whether the underlying companies do.

The whole structure is held together by the expectation of an outlier that may or may not arrive.

The Case for Breadth

The strongest argument against all of this is the data. Venture returns follow a power law, and at seed stage the cost of missing the one outlier is far larger than the cost of backing ten companies that fail. For a fund, breadth is therefore a rational answer to the fact that nobody can reliably tell at seed which company will matter.

We accept the premise and draw a different conclusion. The power-law argument assumes selection is close to random, so that the only lever left is the number of tickets. It also treats each bet as fixed in shape, when in practice entry price, conversion terms, governance rights and downside protection change what a single investment can return and what it can lose.

If selection carries some skill and structure carries part of the payoff, concentration becomes a bet on understanding a small number of companies well enough to price and protect them, which is the bet a deal-by-deal model is built to make.

High-Conviction Investing

Backing fewer companies has three concrete meanings for us. There is no fund behind Paligan, so there is no pool of capital to spread across companies to see what sticks. Our filters are strict, and most of what we see does not pass them. And because we invest our own money alongside our co-investors in every deal, the number of companies we can support properly at any one time has a ceiling.

That structure leaves room for deep diligence on business models, unit economics and founder dynamics, careful structuring before a deal closes and real engagement after it does. Every investment we back has to make sense on its own terms, because we are not counting on one company to carry the rest.

Saying no is more difficult than saying yes when capital is available and the opportunity looks reasonable. Going deep into a small number of situations requires more discipline than spreading across many.

The Case for Focus

That means asking harder questions before committing. It means being honest when something is not ready, even when it is tempting to proceed. It means showing up after the deal in ways that are useful rather than performatively attentive.

It also means accepting that the portfolio will be smaller, and that smaller is not a weakness in a model built around quality. A portfolio of ten companies that were each understood, structured with care and supported properly is a different proposition from forty where the arithmetic does most of the work.