Good morning 👋
Your fund size is your strategy.
That quote should be taped on the computer for any fund manager out there.
Any time you change AUM, you change the strategy of a given fund. It’s never as simple as “we’ll just adjust allocations and ownership targets up with fund size".
There is always nuance, and not recognizing that nuance is how funds, fund managers, and their LPs end up losing a lot of money.
James Heath writes about this a lot, I’ve spent a lot of time digging through this piece. The TL;DR is that small funds have better odds of winning, but there’s a lot that still goes into this equation.
Here are some more thoughts on that …
TOP
The case for staying small
James Heath deserves all of the credit here - this piece is where I’m getting all of my talking points.
Here are the main points for why staying small is the best option for most:
Data from 1,700 VC funds reveals a very simple (and very strong) correlation: the smaller the fund, the better the performance.
It's exponentially easier to return a $50M fund than a $500M fund. A $200M commonly sized venture exit might be a career-defining outcome for a small fund. For a mega-fund, it barely moves the needle.
❝Lest we all start investing solely into sub $100M funds, there is a huge caveat to be considered here; none of this matters if you're not in the right funds.
Access is everything. Venture outcomes are not evenly distributed.
Market consolidation has been a defining theme of 2024, with six firms raising 50% of the capital. Large multi-stage firms are pushing up entry prices, including at the earliest stages.
For managers not participating in these rounds through a large, multi-stage strategy, the implications are clear: you’re underwriting late-stage valuations without the corresponding downside protections.
In a portfolio where ownership and cost basis drive returns, this dynamic introduces asymmetry. What looks like seed may increasingly feel like Series A, however, without the commercialisation or governance rights to match.
The main takeaway of this? Keep backing the GPs running for the 20 instead of walking for the 2.
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TWEET
LINKS
👵 Not Your Grandparents VC: Visual Capitalist graphs acquisitions by traditional VC firms that are on pace for an all-time high in 2025
📖 Nobody Wants to Read Your Stuff: Tomasz Tunguz believes machines will read most written content and summarize on behalf of the reader into a personalized answer
📒 CFO Playbook—5 Elements of Building World-Class Investor Relations: The best founders and CFOs don’t just report metrics—they weave those numbers into a compelling narrative about where the company is headed and why it matters
🕵️♂️ The State of Venture Capital Today: Nicole DeTommaso, principal at Harlem Capital, shares the 36 page report that will get you up to speed
HEADLINES
Why Josh Kushner’s Thrive is expanding beyond venture (Pitchbook)
Why Andreessen, Lightspeed and Coatue Partners Are Leaving (The Information)
European fintech emerges stronger after VC downturn (Pitchbook)
In a good sign for consumer internet startups, Creator Ventures raises $45M (TechCrunch)
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Thanks for reading this far and giving us a little bit of your attention this week.
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- Clay
(Founder @ Confluence.VC | GP @ Outlaw)
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