This study is designed to address the question how of venture capital and private equity firms try to manage the trade-off between specialization and diversification in order to manage their portfolio’s risk and return. Specialization creates specific know-how and networks, both necessary to add value to portfolio companies , while diversification mitigates the high risk embraced in entrepreneurial ventures. The existing literature on the topic focuses on diversification in terms of portfolio size or across industries, financing stages, and regions, where only mixed effects on risk mitigation are found. For this reason, we (1) empirically test the effects of fund diversification across industry, financing stage, and geography on fund performance and risk and (2) work out significant differences between early-stage- and later-stage-oriented funds in their approach to the specialization / diversification trade-off.