venturecapital
The home for Farcasters to discuss all things venture capital and early stage finance.
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Family offices evaluating venture capital as LPs have to understand how quantitative dynamics is crucial to making informed allocations.
VC offers a range of “products” to investors, from small, new, and emerging funds to large, established firms. Each product type can be a valuable vehicle depending on investment style and expectation, there is no universally superior approach, only different strategies to suit diverse goals. Smaller fund sizes, in particular, have shown a correlation with higher potential returns, but it is important to recognize that such funds also experience greater variability, wider return dispersion, and more noise due to limited performance track record and lack of observability of return consistency across vintages.
Let’s understand how fund size and ownership drive venture capital returns, with an illustration.
Smaller funds, such as a $10M seed fund, operate with comparatively modest tickets, for example, allocating $300,000 per company as a follower (not lead). These smaller checks can deliver meaningful ownership at entry (in the sample, 4%). Conversely, a much larger $1B fund must write proportionally larger tickets (e.g., $3.5M) to maintain relevance and portfolio construction, aiming for higher entry ownership (in this scenario, 14%), for instance as a lead.
Both small and large funds face similar cumulative dilution over the company’s lifecycle (here, 50% dilution at exit). The combination of initial ownership and dilution results in a final position at exit (2% for the smaller fund, 7% for the larger). When a strong exit occurs ($1.5B in this illustration), the exit proceeds for each fund are dramatically impacted by these percentages.
The smaller fund’s $300k check returning $30M generates a 100x gross multiple on the deal and represents a 3x return relative to the entire $10M fund. The large fund, despite securing a larger absolute exit value ($105M), achieves a gross deal multiple of 30x but a mere 0.11x multiple versus the overall $1B fund size.
Smaller funds benefit from outsized returns when a single major exit can move the needle, the economics allow one investment to return multiples of the entire fund. Larger funds require truly extraordinary outcomes (much greater than $1.5B), or many substantial exits, to match this impact at the fund level.
For S/MFOs considering VC allocations, fund size, ticket size, and ownership dynamically interact to set the ceiling on returns. Ideally, S/MFOs develop a VC portfolio construction embracing the barbell dynamics of this asset class.
(this is a theoretical modeling, without considering follow-on investments, management fees etc) 3 replies
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White paper by @olivecap.eth: "Unlocking the potential of Venture Capital: why Family Offices need a prepared mind".
I will send you a copy after you have filled out this form: olivecapital.vc/vc-fo
As VC increasingly attracts Family Offices, navigating this people-first asset class requires more than capital. The unique challenges of VC (such as long investment horizons, high risk, specialized market knowledge, and access barriers) make it essential for S/MFOs to approach it with a prepared mind and expert guidance.
Understanding VC’s nuances, from assessing new and emerging managers to navigating illiquidity and adverse selection, is crucial. Without this, Family Offices risk misallocation, missed opportunities, and avoidable risks.
To support Family Offices (single and multi) in bridging this knowledge gap, I have published a white paper that frames VC strategy around these realities. 0 reply
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As an LP, mastering "ex-ante" decisions when investing in VC is critical.
It refers to making forward-looking investment choices based on the probability of future success rather than relying solely on past outcomes, acknowledging the inherent uncertainty and long-term nature of Venture Capital.
This is even more relevant when assessing new and emerging GPs (Fund Is to IIIs).
It means several things:
When an LP makes an ex-ante decision, they are not buying a "secondary" or looking at what has already happened. Instead, they are actually just looking at what is the probability of success in the future for the GP. This is crucial because, especially for new and emerging managers, assessing that takes minimum 8 to 10 years to know if somebody was a great picker or they just happen to be in the right rooms.
Because future success is always uncertain, LPs must focus on process more than just outcomes in the past. This means understanding how the GPs think, the managers' mental models, their thought process, and their strategies. Looking for GPs who have completely stressed tested every single assumption they make, is a good approach (e.g. with the "minimum viable fund size").
For a deeper understanding of this process, LPs should ask really dumb questions that GPs are not used to see, in order to unearth the Why behind their beliefs.
Eventually, and especially with new and emerging managers where traditional performance metrics like are not available, the ex-ante decision ultimately should be a bet on the person. LPs must be looking for unique drive, self-awareness, ambition, and an asymmetric edge in the GP. It is about investing in GPs who are building a 20, 30, 40, 50-year firm, not just trying to raise a fund because it seems like a fun thing to do.
As an LP, mastering "ex-ante" decisions when investing Venture Capital is critical. 0 reply
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LPs must understand a Venture Capital firm's long-term viability, by looking beyond returns, and focusing on organizational behavior.
In other words, to understand a VC firm’s endurance, Limited Partners must evaluate how a firm is built and run as an organization, not just how it performs financially. VC is fundamentally a people-driven business, and the sustainability of a firm depends on e.g. partner dynamics, governance, and team-building discipline.
Here is a high-level, must-have checklist for LPs to assess multi-partner dynamics:
LPs are evaluating GPs on two critical fronts: their investment skill AND how good they are at picking other people and building their team. Cohesion is paramount, and success depends heavily on interpersonals. Firms are vulnerable to collapse if the firm's strength relies solely on one person driving all returns, the 'single rainmaker'.
Predicting partners rotation is critical too. LPs must anticipate future partner changes, especially when one person seems to be 'swimming over here' while the rest of the team is and 'swimming in this way'.
Also, in a cohesive partnership, value extends far beyond simple $ attribution. Partner contributions are often qualitative, including high-value board seat work, providing strong advice, training, or the skill to mentor, for the sake of generational transition.
While 'consensual' investment committees may have their obvious pros, such as reducing individual biases and identifying blind spots, kind of a decentralized power is needed too. LPs should look for structures where the partnership is deliberate. Why? Because in the most effective VC team models, every partner has the ability to vouch for something and write the check, even in the face of internal disagreement, pushing decision-making to the edge.
Eventually, and not the least, a diverse team helps manage bandwidth and mental load, ensuring that if one partner is mentally drained, another can be fresh or bring curiosity from a different angle.
LPs must understand a VC firm's long-term viability and endurance, by looking beyond returns, and focusing on organizational behavior. 0 reply
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How should family offices envision a 'great GP' in venture capital?
More Single and Multi-Family Offices (labeled here S/MFOs) are starting or expanding their exposure to venture capital. However, many still primarily focus on brand-name VC firms, potentially missing out on outstanding managers by relying solely on reputation.
S/MFOs should shift to evaluating all GPs through a holistic, multi-dimensional lens. The 'best GPs' offer much more than just successful investments. They bring alignment, reliability, and enduring partnership.
Here is a framework for assessing GPs and find the 'best' ones:
1 - First, there is the GP story. The question should be: does the GP’s origin and values resonate with your family’s mission?
2 - Then comes the investment process. Here too the question must be: is there a repeatable and disciplined strategy backing every portfolio decision?
3 - Subsequently, S/MFOs should consider operational excellence. They should ask themselves while considering a GP: is the team, reporting, and governance truly institutional-grade?
= Collectively, 'GP story + investment process + operational excellence' form the foundation of a great GP. This foundation should ultimately lead to top quartile (and ideally, top decile) financial performance.
Relationship value is of utmost importance in venture capital, because transparency, trust, and collaborative spirit should be woven into the partnership. Returns are the reward, but partnership is the foundation. This framework intends to help S/MFOs assess VC GPs not simply by funds performance (DPI/TVPI), but by cultural fit, strategic discipline, and the reliability of long-term partnership.
Notably, an increasing number of new and emerging GPs (typically Fund Is to IIIs) represent sound candidates, yet often overlooked by brand-dependent approaches, but attractive for patient S/MFOs capital.
(Note: this is an LP-GP post inspired by a read of a piece that was produced by Sequoia about building amazing companies.) 0 reply
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Being a new GP in Venture Capital is tougher than ever in 2025. What role can Family Offices play?
When S/MFOs consider allocations to VC, it is easy to underestimate how much has changed and how hard the path truly is for GPs raising VC funds in 2025. While headlines mostly focus on startups raising rounds, every $ begins with a fund that had to clear ever-rising hurdles.
Despite abundant global capital, fewer funds are being closed, the average time to a meaningful first close of a fund now exceeds 17 months, and USD are increasingly concentrated among established managers. The leap from Fund I to Fund II, or especially Fund III, is not linear and it is an uphill battle of drop-off fundraises.
A few reasons:
LPs overwhelmingly favor managers with tangible, realized returns, first-time teams must bridge a formidable credibility gap.
Securing a serious anchor is often the difference between momentum and never-end network exhaustion, meaning that without it, fundraising stalls. S/MFOs should recognize the catalytic impact of being (or co-investing alongside a reputable) anchor.
Tighter liquidity, slower exits, and declining IPO activity mean longer fundraising calendars and far less cash returned to LPs. This concentrates risk and capital in brand-name GPs, leaving new entrants with fewer opportunities and less flexibility.
With most new/emerging funds run by lean teams (often just 1 to 3 GPs), supporting portfolio companies, fundraising, and operations simultaneously is a constant balancing act.
37% of first-time VCs won’t make it past their Fund II, and in 2025, a handful of large VC firms collected over 50% of all VC capital while most first-time managers struggled to gain traction. S/MFOs should be aware that for every new/emerging GP who seeks support, dozens more face insurmountable fundraising and operational barriers, making selection and ongoing partnership crucial.
Backing GPs is not just about writing a check. S/MFOs can make the greatest impact by acting as anchor or strategic LPs in new/emerging managers, while encouraging differentiation in a capital-concentrated world. S/MFOs who understand and support this journey will help build the next generation of VC leaders.
Being a new GP in Venture Capital is tougher than ever in 2025. Family Offices have an active role to play. 0 reply
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Why I believe the best GPs in VC might be the worst fundraisers.
Here is the paradox:
+ Fundraising rewards storytelling, polish, and pattern recognition.
+ DPI rewards patience, judgment, consistency, and time with founders.
Can the two greatly overlap?
The GPs who quietly build real, distributed returns across 2–3 vintages often look unimpressive in fundraising meetings. They are not optimizing for IRR optics or neat decks. They are optimizing for founders, conviction, and companies.
Meanwhile, LPs often over-index on great salesmanship because their own careers, reporting cycles, and incentives run on much shorter timelines.
But true venture capital performance only compiles over 10–15 years, even longer now. That is when the quiet, low-profile GPs finally earn recognition, and when the fundraising flywheel turns in their favor.
I believe the best GPs in VC might be the worst fundraisers.
Note: this post particularly focuses on the early stages and the new and emerging manager category (Fund Is to IIIs). 1 reply
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