How Do VCs Mitigate Risk In Their Investment Portfolios?

(Although this orignal post was written about VC diversification, the points are equally valid for Angels.)

Question: How do VCs mitigate risk in their investment portfolios? Are VCs simply looking to diversify the type and stage of companies in which they invest, or do they employ other financial hedging strategies?

I’m not aware of VCs using classic financial hedging strategies. In many cases, they are prohibited from doing this by their LP agreements and/or investment documents in the companies when they make an investment. While I’m sure there are some folks that