Diversifying Private Deals: A Simple Allocation Rule

Private investments can be exciting. They can also be confusing, illiquid, and surprisingly easy to overdo.

I have seen this pattern again and again: an investor finds one strong deal, loves the story, trusts the sponsor, and then goes heavy. Not because it is “objectively” the best move, but because it feels simpler than spreading smaller checks across multiple opportunities.

The problem is that private deals behave differently than public stocks and bonds. In public markets, you can rebalance quickly, trim a position, or exit in minutes. In private markets, your timeline is often measured in years. If a deal underperforms, you may not have many levers to pull.

That is where a simple allocation rule helps. It can give you a clear way to size each private deal so that one surprise does not dominate your results.

This article lays out one practical rule, why it works, how to adapt it, and how to implement it in a way that stays grounded in real-world private market constraints.

Important: This is educational information, not investment, legal, or tax advice. Private investments involve significant risk, including loss of principal, illiquidity, valuation uncertainty, and a lack of transparency compared to public markets. Past performance is not indicative of future results. Consider your financial situation and consult qualified professionals before investing.

Why position sizing matters more in private deals

Diversification is not just “own more things.” It is about reducing the chance that one outcome, good or bad, overwhelms your plan.

Private deals create a few specific concentration risks:

• Illiquidity risk: You typically cannot sell when you want (or at all).

• Long time horizons: Many private investments take years to mature, and timelines can extend.

• Idiosyncratic risk: Single-company and single-project outcomes can vary widely.

• Valuation risk: Pricing can be infrequent and subjective. Your portfolio may look stable until it suddenly is not.

• Manager or sponsor risk: Execution, reporting quality, and decision-making matter a lot.

Because of this, “how much” you allocate to each deal can matter as much as “which” deal you choose.

The simple rule: A three-layer allocation framework

Here is the allocation rule I recommend as a starting point for many accredited investors building a private portfolio:

Layer 1: Cap total private exposure

Decide the maximum percentage of your investable portfolio you want in private markets.

A common starting range is:

• 10% to 30% of investable assets in private investments for many investors, depending on liquidity needs, time horizon, and risk tolerance.

If you are new to private deals, starting smaller is often prudent while you learn how capital calls, reporting, taxes, and timelines actually feel in practice.

Layer 2: Limit any single strategy sleeve

Within private investments, split into “sleeves” (for example: private equity, venture, private credit, real estate, secondaries).

A simple rule here:

• No more than 50% of your private allocation in one strategy sleeve (and for higher-volatility sleeves like early-stage venture, many investors choose a lower cap).

This helps prevent one segment of the private market from defining your entire private outcome.

Layer 3: Set a per-deal maximum

Now the key sizing rule:

Aim for 10 to 20 private deals total over time, and keep each individual deal at roughly 5% to 10% of your private allocation (not 5% to 10% of your total net worth).

In equation form:

• Max per-deal allocation = (Private Allocation %) × (5% to 10%)

So if you set private investments at 20% of your investable portfolio:

• 5% of private allocation = 1% of total portfolio per deal

• 10% of private allocation = 2% of total portfolio per deal

That is the heart of the rule. It is simple, but it is powerful because it forces you to avoid oversized bets in an asset class where you cannot easily change your mind later.

A concrete example (with realistic numbers)

Let’s say you have $1,000,000 in investable assets (not including a primary residence, for simplicity).

1. You choose a 20% private allocation cap.
   That is $200,000 earmarked for private investments.

2. You decide to build toward 15 deals over time.
   That implies roughly $13,000 per deal on average ($200,000 ÷ 15).

3. You set a hard maximum of 10% of private allocation per deal.
   That is $20,000 maximum into any single deal.

This gives you two important protections:

• One deal going to zero (or materially underperforming) does not derail your overall plan.

• You give yourself multiple “shots on goal,” which matters because private deal outcomes are often uneven.

Why 10 to 20 deals is a practical target

In a perfect academic world, you would diversify across dozens of deals. In the real world, you are constrained by:

• Minimum investments

• Time and due diligence bandwidth

• Paperwork, K-1s, and administrative overhead

• Cash flow timing (capital calls, distributions)

For many individuals, 10 to 20 deals is the range where diversification benefits become meaningful without turning your life into a full-time back office.

If your minimum check sizes are higher, you may land closer to 10. If you have access to lower minimums or pooled vehicles, you may be able to build beyond 20.

Adjusting the rule based on deal type (a simple risk dial)

Not all private deals deserve the same position size. You can keep the same framework and just adjust the per-deal cap depending on the risk profile.

Here is a practical way to think about it:

Lower volatility (still risky, but typically less binary)

Examples: senior private credit, diversified income-oriented real estate

• Consider up to 10% of private allocation per deal if the structure, diversification inside the deal, and manager track record support it.

Higher volatility / more outcome dispersion

Examples: early-stage venture, single-asset development projects, concentrated buyouts

• Consider closer to 5% of private allocation per deal, sometimes less.

This is not a comment on which category is “better.” It is just acknowledging that some outcomes are more spread out, so your sizing should be tighter.

Two common mistakes this rule prevents

1) “I only need a few great deals”

This is one of the easiest traps to fall into, especially in venture-style investing. The math of these portfolios often assumes a small number of outliers drive returns. That dynamic is exactly why concentration risk can be so punishing.

You are not trying to predict the outlier in advance. You are trying to build a portfolio that can capture outliers without requiring you to be perfect.

2) “I’ll diversify later”

With private deals, “later” is tricky. Capital gets tied up, new opportunities appear, and before you know it, your private allocation is mostly in the first few deals you did.

A per-deal cap forces discipline early, when it matters most.

Implementation details people forget (but shouldn’t)

Treat commitments and cash differently

Many private funds use commitments and capital calls. If you commit $50,000 today, you may only fund $10,000 this quarter and the rest later.

Your allocation rule should be based on committed capital, not just what has been called so far. Otherwise, you can accidentally over-allocate without realizing it.

Keep room for follow-ons (selectively)

Some deal types may require or strongly benefit from follow-on capital (for example, pro rata in venture, or additional capital for certain real estate situations).

If follow-ons are part of your plan, a simple tweak is:

• Allocate 80% of your private budget to initial positions

• Reserve 20% for follow-ons and opportunistic additions

You can adjust those percentages, but the concept matters: avoid using 100% of your “private budget” on day one.

Diversify by more than company count

Counting deals is helpful, but it is not the whole story. You also want to avoid clustering in the same underlying drivers, such as:

• The same sponsor across many deals

• The same geography (for real estate)

• The same vintage year (investing everything in one fundraising cycle)

• The same sector or theme

A portfolio of 15 deals that all depend on the same macro factor is not as diversified as it looks.

A “one-page” version of the rule you can actually use

If you want something you can screenshot and follow:

1. Pick your private allocation cap: 10% to 30% of investable assets (typical starting range).

2. Pick a deal count target: 10 to 20 deals over time.

3. Set a per-deal max: 5% to 10% of your private allocation per deal.

4. Add a sleeve cap: no more than 50% of private allocation in one strategy sleeve.

5. Track commitments, not just funded amounts.

6. Keep a reserve: consider holding 10% to 20% of private budget for follow-ons and timing mismatches.

How Braintrust can help you apply this without overcomplicating it

Rules like this only work if you can actually track and maintain them.

If you are researching and managing both public and private holdings, it helps to have one place where you can:

• Review opportunities with consistent information

• Compare deals across different strategies

• Organize your portfolio view so allocations are clear

• Keep your plan anchored as new deals show up

That is the clarity Braintrust brings: giving accredited investors tools to research, access, and manage investments across public and private markets from a single workflow. If you are trying to build a diversified private portfolio over time, having a clean way to see exposures and position sizes can make the simple rules much easier to follow.

Reminder: Access does not remove risk. Private investments may be speculative, illiquid, and suitable only for investors who can bear the risk of loss and limited liquidity.

The bottom line

A good private investment plan is rarely about finding one perfect deal. It is about building a portfolio where no single decision has the power to break your outcome.

If you do nothing else, do this:

• Cap total private exposure.

• Limit strategy concentration.

• Keep per-deal sizing small enough that mistakes are survivable.

The “5% to 10% of your private allocation per deal” rule is not fancy, but it is practical. It respects the reality that private deals are hard to exit, hard to value, and often unpredictable.

And in private markets, staying in the game matters. The easiest way to stay in the game is to size your bets so one deal never gets to decide your future.