derisk

Derisk is a verb meaning to reduce exposure to risk or to lower the probability or impact of adverse outcomes in a project, portfolio, or operation. The noun derisking is used to describe the process or set of actions undertaken to achieve this goal. In practice, derisking involves identifying significant risks and applying measures to mitigate, transfer, or absorb them.

In finance and investing, derisking often means moving toward higher-quality assets, reducing leverage, increasing liquidity, and hedging or insuring exposures. Techniques include hedging with options or futures, diversification across asset classes and geographies, use of credit enhancements, insurance, and, where appropriate, securitization or risk transfer arrangements. Strong governance, robust stress testing, and disciplined capital planning are integral parts of derisking in portfolios and balance sheets.

In corporate strategy and project management, derisking aims to stabilize cash flows and execution risk. Common measures include securing long-term contracts or take-or-pay arrangements, product-market validation before scale-up, staged development with milestone-based funding, supplier diversification, contingency planning, and maintaining adequate liquidity.

In venture capital and startup contexts, derisking refers to reducing key uncertainties—such as product-market fit, regulatory approval, and customer adoption—through pilots, early revenue, partnerships, and clear milestones that unlock further funding. While derisking can attract investors, it may also cap upside if risk is reduced too conservatively.

Derisking is distinct from risk avoidance; it is about reducing exposure without eliminating risk entirely. The term is common in corporate finance, risk management, and impact investing.