Beyond the Unicorns: Why Diversification is the Key to Private Market Success

Richard Hadler here from Founders Capital. We scour Europe for the top 1% of Start-ups led by epic Founders, giving them access to our world-class investor & partner network to scale their ventures to heady heights.

When people think of private market investing, they often picture finding that one magical startup that skyrockets to a billion-dollar valuation—like stumbling upon a golden ticket to Willy Wonka’s chocolate factory.

But here’s the truth: putting all your bets on a single unicorn is more like gambling than investing.

Sure, it’s exciting to dream about catching the next Stripe or OpenAI, but a truly successful private market portfolio is more like a well-stocked pantry: diverse, resilient, and able to serve up a delicious outcome no matter what ingredients the market throws your way.

Here’s why you should stop purely chasing unicorns and start building a portfolio that works in the real world.

The Unicorn Trap

Imagine you’re on a treasure hunt, following a map marked with “X.” You dig and dig, dreaming of gold, but the chest is empty. That’s the risk of focusing solely on unicorns.

Unicorns are rare—only 77 companies globally achieved unicorn status in 2024, down sharply from 202 in 2021. Betting everything on finding “the next big thing” is like playing the lottery. Sure, it’s thrilling, but it’s hardly a reliable way to build wealth.

Instead, investors who diversify their portfolios are better equipped to succeed. By spreading your bets across smaller high-growth companies, stable late-stage investments, and emerging markets, you can maximise your chances of success while staying resilient to market fluctuations.

The Importance of Staying Disciplined

The private markets are becoming more accessible than ever. New platforms, syndicates, and funds mean you no longer need millions to participate. But with this accessibility comes a greater risk of overexposure to hype cycles. A disciplined approach, focused on diversification, is essential for navigating this increasingly crowded space.

Think of diversification as your safety harness in the high-stakes world of private market investing. It keeps you from falling prey to market bubbles or the allure of putting too much into one “hot” sector or stage.

Diversifying by Sector: Don’t Put All Your Eggs in One Basket

Imagine you’re a farmer. Would you plant only apples and risk your entire livelihood on a single crop? Of course not. Diversification works the same way in investing.

Take AI, for instance. It’s the buzzword of the moment, and while its potential is undeniable, its volatility is just as real. Overexposure to AI could leave you vulnerable to the next market correction. That’s why seasoned investors balance tech-heavy bets with other sectors like consumer goods, green energy, and infrastructure.

Sometimes, I’ve had to pick up the phone to speak with first-time investors at Founders Capital—those bounding in with a larger-than-average cheque for an early-stage company. While the enthusiasm is great, I always make sure they understand what they’re signing up for. Early-stage investing is high risk, and it’s critical to see how this fits into their broader investment strategy. I remind them that a single company, no matter how promising, shouldn’t make or break their portfolio. Diversifying their investments across multiple sectors and stages is the best way to balance excitement with stability.

Diversifying by Stage: A Portfolio’s Pub Crawl

Think of private market investing as a night out. Early-stage startups are like scrappy dive bars—cheap thrills and unpredictable outcomes. Later-stage companies are the classy cocktail lounges—higher cover charges but more predictable vibes.

You wouldn’t spend your whole night (or your entire portfolio) in just one type of venue, would you? The same goes for investing.

At Founders Capital, our thesis is built around stage diversification. Over the past 18 months, we’ve deployed over $25 million into 40+ companies, leveraging a global network to access opportunities across the private market spectrum. Our portfolio spans three distinct investment buckets:

1. Moonshots: High-risk, transformational technologies like AI, synthetic biology, and quantum computing. These are bets on visionary founders building the future.

   Example: Anthropic, pioneering ethical AI applications.

   Return Potential: 10x-20x over 5-10 years.
   

2. Wave Riders: Growth-stage companies scaling rapidly with proven momentum in high-growth sectors.

   Example: Perplexity, an AI-powered search engine transforming user interactions.

   Return Potential: 4x-10x over 3-7 years.
   

3. Staple Powerhouses: Late-stage companies with established revenue streams and clear paths to IPOs or acquisitions.

   Example: SpaceX, dominating aerospace technology.

   Return Potential: 2x-4x over 2-5 years.

This disciplined, multi-stage approach has delivered results, with a 2.39x portfolio valuation in just 18 months.

How Diversification Plays Out in Practice

Diversification isn’t just an abstract concept—it’s a strategy with real-world impact. At Founders Capital, we’ve seen firsthand how a balanced approach creates more resilient portfolios. Here are a few key lessons we’ve learned:

1. Avoid Overexposure to Trends: In the last 18 months, we’ve encountered countless investors drawn to the AI gold rush. While AI remains a promising sector, over-concentration leaves portfolios vulnerable to corrections. By balancing AI investments with sectors like green energy and consumer tech, we’ve helped our investors stay ahead of the curve without falling prey to hype cycles.
   

2. Don’t Go All-In on Early-Stage: Early-stage Moonshots are exciting but inherently risky. One of our most cautious investors initially planned to put their entire allocation into early-stage startups but adjusted their strategy to include growth-stage Wave Riders and late-stage Staple Powerhouses. As a result, they’ve seen steady returns while retaining exposure to high-growth opportunities.
   

3. Global Portfolios Weather Storms: Geographical diversification has proven invaluable. For example, when US tech valuations dipped in late 2024, our investments in Southeast Asian consumer startups and Middle Eastern logistics companies maintained strong growth, proving the power of a globally diversified portfolio.

These are the kinds of lessons that can only be learned through a disciplined, diversified investment approach.

By spreading risk across sectors, stages, and geographies, investors ensure their portfolios can adapt to the ever-changing dynamics of private markets.

Conclusion: Invest Like a Chef

The private markets are no longer reserved for the elite. But as they become more accessible, staying disciplined and diversified is more important than ever. The secret to successful investing isn’t chasing unicorns—it’s about crafting a portfolio that’s resilient, balanced, and built to last.

Think like a chef in a Michelin-star kitchen: curate a menu of investments across sectors, stages, and geographies. By spreading your bets wisely, you’ll find success not in one company but in the strength of your portfolio as a whole.

Stop chasing unicorns and start building a portfolio that’s built to endure.

After all, even Willy Wonka knew the value of variety.

Until next time!

Cheers,

Rich

Co-Founder & General Partner
Founders Capital
+44 7900 500 367
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