Is the “Conviction” Game in VC Is BS?
The Math Behind Why Most VCs Should Diversify, Not Double Down
Hey everyone, this week Peter Walker broke the internet with a Linkedin post about how Spread & Pray might be a better investing strategies for VC than conviction.
I thought this was super interesting and couldn’t avoid to dig a bit deeper and share it with you.
Let’s get it!
If you’d like to sponsor the Product Market Fit, email me at g@guillermoflor.com
PS: I’m starting something new called Alfred: the first fully personalized newsletter. Imagine it’s me just writing to you. Check it out here
Is the “Conviction” Game in VC Is BS?
Why Diversification Beats Concentration (Unless You’re in the Top 5%)
Venture capitalists love to tout their “high conviction” bets—selecting a few startups they just know will be winners—and deride broad portfolio strategies with the dismissive label “spray and pray.”
The logic goes something like this: a great VC doesn’t need to back 100 companies. They just need to know which 20 matter, double down on the winners, and help them scale. Spray and pray? That’s for amateurs who don’t know what they’re doing. Right?
But recent data from Carta flips this myth on its head.
Unless you’re in the top 5% of funds, the numbers say you're better off not playing the conviction game. Diversification—more bets, smaller checks—actually performs better on average, reduces your downside, and increases your odds of hitting a 2–3x fund. It’s not a fluke. It’s math.
Let’s dig in.
The Conventional VC Playbook: “Conviction” = Genius
Most seed-stage VCs build portfolios of 20–30 startups. They talk a lot about pattern recognition, founder-market fit, and “leaning in” on the few breakout companies. In this model, conviction is the holy grail. You pick well. You write bigger checks. You win big.
And if your fund does more deals than average? You must be spraying and praying. You don’t know what you’re doing. You’re lazy. You lack taste.
It’s a comforting story for VCs—and LPs who want to believe they’re backing the next Sequoia. But what if the story is wrong?
The Data: Spray & Pray Beats Conviction (Most of the Time)
Carta recently modeled two strategies for a $50M venture fund:
High Conviction: 20 portfolio companies, $2M each
Diversified (“Spray & Pray”): 100 portfolio companies, $0.4M each
After running 20,000 simulations using real-world exit probabilities and power-law dynamics, the results were clear:
Mean fund multiple:
Diversified: 2.6x
Concentrated: 2.1x
Median fund multiple:
Diversified: 2.5x
Concentrated: 1.9x
Chance of ≥ 1x (not losing money):
Diversified: 99.7%
Concentrated: 81.9%
Chance of ≥ 2x:
Diversified: 77%
Concentrated: 47%
Chance of ≥ 3x:
Diversified: 27%
Concentrated: 22%
Only at the very top—95th percentile outcomes—did concentration outperform (4.8x vs 4.0x). Translation: unless you’re in the top 5%, diversification wins.
It’s like betting on roulette. You could put it all on black and pray—or you could spread your bets and walk away with steady returns. Most VCs? They’re not the house. They’re gamblers pretending they’re in control.
Big VCs are becoming Index Funds (beating the public markets?)
Marc Andreessen recently published on X that VC is looking more and more like long term market investing, and it’s so in line to what Carta simulation shows.
The bigger the AUM to more correlation to the market.
Why Diversification Wins
Venture returns follow a power law. A few investments drive nearly all the gains. Most go to zero. So unless you have a crystal ball, you want more shots on goal.
With 100 investments, your odds of catching a $1B+ outcome are far higher—even if your stake is smaller. And even if you don’t, you’re still more likely to return the fund or get a respectable 2–3x.
It’s not that conviction is bad. It’s that most VCs aren’t as good as they think. Picking future unicorns is really hard. Most VCs miss the outliers. They bet big on what turns out to be a mediocre outcome. Then they blame “market conditions.”
In contrast, a broad portfolio assumes you don’t know who the winner is. You hedge your bets. You capture more of the distribution tail. You let luck work for you.
What’s the sweetspot portfolio
The Real Reason VCs Play the Conviction Game
It’s not returns. It’s optics.
LPs love a good story.
VCs love looking smart.
Concentrated bets signal genius.
Spray and pray signals… desperation?
But the math tells a different story. Spray and pray works better—unless you’re top-tier. And spoiler alert: most funds are not.
So why don’t more VCs embrace it? Because it’s hard to justify a 2% management fee and 20% carry for “indexing early-stage tech.” Concentration sells better. It strokes egos. It looks good on a pitch deck. But that doesn’t make it right.
Cole Rotman’s Deep Dive on Series a Investors (check excel file)
This chart brings to mind Cole Rotman's deep dive on Series A investors: if I recall correctly, Benchmark backed just 63 companies—seven of which reached $5 billion valuations, whereas a16z made 454 investments, eleven of which surpassed $5 billion. It’s a great example of how different capital-return strategies can be, and whether you opt for a mutual-fund model or a boutique approach depends on how you’re playing the game.
PS: It looks this also applies to YC investing
What This Means for Founders
This shift matters for you, too.
VCs with diversified portfolios might:
Be more willing to fund non-consensus ideas
Say yes to riskier teams or unfamiliar geographies
Move faster, because each check is less weighty
The tradeoff? You might not get tons of time from them. But let’s be honest: were you really getting that from your “high-conviction” investor anyway?
What This Means for LPs
If you want consistent, 2–3x returns—and low risk of losing your money—diversification wins.
So maybe stop looking for the next genius picker. Start looking for managers who are systematic, humble, and willing to spread bets across real surface area.
It’s not as sexy. But it performs better.
Final Thought: Conviction Isn’t Dead. But It’s Overrated.
There are amazing VCs with real insight. There are funds that should concentrate.
But the data is clear: most of us would do better admitting we don’t know and making more bets.
Spray and pray isn’t stupidity. It’s humility. It’s strategy. And maybe it’s time we start giving it the respect it deserves.
If you want to dive deeper, Carta’s sharing more data on July 15. But the headline’s already clear.
What do you think?
Cheers,
-Guillermo
FAQs: Diversification vs. Conviction in Venture Capital
1. What is the difference between 'conviction investing' and 'spray and pray' in VC?
Conviction investing refers to a strategy where VCs back a small number of startups with large checks, betting big on a few winners. “Spray and pray” involves investing in many startups with smaller checks, increasing the chances of capturing outlier returns.
2. Is spray and pray a better venture capital strategy than conviction?
According to recent Carta data simulations, diversification (spray and pray) outperforms conviction investing for most VC funds—especially those outside the top 5%. Diversified portfolios achieve higher average returns and reduce the risk of total loss.
3. What does Carta’s data say about VC diversification vs. concentration?
Carta modeled two VC fund strategies and found that diversified portfolios (100 investments) had higher mean and median returns, lower downside risk, and a greater chance of hitting 2–3x returns than concentrated portfolios (20 investments).
4. Why do most VCs still favor conviction investing?
VCs often choose conviction strategies due to optics and LP expectations. Concentrated bets appear more strategic and sophisticated, while diversified strategies may seem less discerning—even if the data suggests they’re more effective.
5. What are the advantages of a diversified VC portfolio?
Diversified portfolios offer more shots at billion-dollar outcomes, spread risk across more companies, and are more likely to return the fund—even if individual stakes are smaller.
6. Does diversification in VC mean lower support for founders?
Not necessarily. While diversified investors might offer less hands-on involvement, they often move faster and back more unconventional ideas, which can be beneficial for early-stage founders.
7. What’s the ideal number of investments for a seed-stage VC fund?
There’s no universal sweet spot, but Carta’s modeling suggests that more than 20–30 investments significantly increases a fund’s odds of solid returns, especially for non-top-tier VCs.
8. Is the spray and pray approach relevant for limited partners (LPs)?
Yes. LPs looking for consistent 2–3x returns with lower risk of loss may benefit from backing managers who diversify broadly instead of chasing concentrated bets on supposed “genius” investors.
9. Does the power law of venture returns support diversification?
Absolutely. Because a tiny number of startups deliver the majority of venture returns, casting a wider net increases the likelihood of backing a true outlier.
10. Are top VCs like a16z and Benchmark using different investment strategies?
Yes. For example, Benchmark made fewer bets but had a high hit rate with billion-dollar outcomes. a16z made significantly more investments, capturing similar results through volume—illustrating two viable but different approaches.
11. How does this insight impact startup founders raising capital?
Founders should recognize that diversified investors may be more open to risk, faster-moving, and willing to back ideas outside traditional molds—even if they’re less “involved” post-investment.
12. Is conviction investing dead?
Not at all—but it may be overrated. While conviction can work for top-tier investors, most funds would see better results by embracing diversified, data-driven approaches.