How Venture Investors Health Fund leverages funds of funds for capital availability

Here is an interesting take on how to take exit multiplier with a grain of salt. The rate of return depend heavily on the duration needed to reach that multiplier.

For years, 3x in 10 years has been the gold standard for venture investors. 𝐁𝐮𝐭 𝐰𝐢𝐭𝐡 𝐟𝐮𝐧𝐝 𝐥𝐢𝐯𝐞𝐬 𝐬𝐭𝐫𝐞𝐭𝐜𝐡𝐢𝐧𝐠 𝐚𝐧𝐝 𝐞𝐱𝐢𝐭𝐬 𝐭𝐚𝐤𝐢𝐧𝐠 𝐥𝐨𝐧𝐠𝐞𝐫, 𝐭𝐡𝐚𝐭 𝐬𝐚𝐦𝐞 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞 𝐦𝐚𝐲 𝐧𝐨 𝐥𝐨𝐧𝐠𝐞𝐫 𝐛𝐞 𝐞𝐧𝐨𝐮𝐠𝐡.👇 In today’s venture landscape, companies are staying private longer, liquidity windows are narrower, and fund extensions have quietly become the norm. That extra time compounds - and not always in the way investors hope. What looks like the same performance on a MOIC basis can mean something entirely different once duration is factored in. Over the past few years, I’ve reviewed venture funds with very similar multiples but drastically different outcomes once you account for time. A 3x may look strong on paper, but if it takes five extra years to get there, the annualized return can fall from ~20% to ~11% - nearly erasing the excess return LPs expect from venture capital. To test this, I modeled a $100M fund using a standard capital call and distribution curve, measuring IRRs across 2.0x - 6.0x gross TVPI multiples realized between Year 8 and Year 18. The results are clear: 𝐚𝐬 𝐭𝐢𝐦𝐞𝐥𝐢𝐧𝐞𝐬 𝐞𝐱𝐭𝐞𝐧𝐝, 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞𝐬 𝐫𝐢𝐬𝐤 𝐥𝐨𝐬𝐢𝐧𝐠 𝐩𝐨𝐰𝐞𝐫 - 𝐚𝐧𝐝 𝐯𝐞𝐧𝐭𝐮𝐫𝐞’𝐬 𝐢𝐥𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 𝐜𝐨𝐦𝐩𝐫𝐞𝐬𝐬𝐞𝐬 𝐪𝐮𝐢𝐜𝐤𝐥𝐲. 🔍 𝐊𝐞𝐲 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬 1️⃣ 𝐃𝐮𝐫𝐚𝐭𝐢𝐨𝐧 𝐢𝐬 𝐭𝐡𝐞 𝐬𝐢𝐥𝐞𝐧𝐭 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞-𝐤𝐢𝐥𝐥𝐞𝐫. A 3x achieved in 12 years instead of 10 cuts IRR by five percentage points - from 20.4% to 15.3% - and at 15 years, 𝐢𝐭’𝐬 𝐧𝐞𝐚𝐫𝐥𝐲 𝐡𝐚𝐥𝐯𝐞𝐝 𝐭𝐨 𝟏𝟏%. For GPs, it’s a reminder that holding periods and liquidity pacing are performance levers every bit as important as company selection or entry ownership. 2️⃣ 𝐇𝐢𝐠𝐡𝐞𝐫 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞𝐬 𝐜𝐚𝐧’𝐭 𝐟𝐮𝐥𝐥𝐲 𝐨𝐟𝐟𝐬𝐞𝐭 𝐬𝐥𝐨𝐰𝐞𝐫 𝐯𝐞𝐥𝐨𝐜𝐢𝐭𝐲. To maintain a 20.4% IRR after a four-year delay, 𝐚 𝐟𝐮𝐧𝐝 𝐰𝐨𝐮𝐥𝐝 𝐧𝐞𝐞𝐝 𝐭𝐨 𝐭𝐮𝐫𝐧 𝐚 𝟑𝐱 𝐢𝐧𝐭𝐨 𝐧𝐞𝐚𝐫𝐥𝐲 𝐚 𝟔𝐱 - an unprecedented leap in today’s market. For GPs, it underscores how patience alone doesn’t protect returns; speed of compounding and timely distributions matter just as much. 3️⃣ 𝐓𝐡𝐞 𝐢𝐥𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 𝐢𝐬 𝐬𝐡𝐫𝐢𝐧𝐤𝐢𝐧𝐠. Since 1997, the S&P 500’s median long-run annualized return has held steady around 8 - 9%. When a 3x fund slips from 20% to 11% IRR, 𝐯𝐞𝐧𝐭𝐮𝐫𝐞’𝐬 𝐞𝐱𝐜𝐞𝐬𝐬 𝐫𝐞𝐭𝐮𝐫𝐧 - 𝐢𝐭𝐬 𝐢𝐥𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 - 𝐟𝐚𝐥𝐥𝐬 𝐛𝐲 𝐧𝐞𝐚𝐫𝐥𝐲 𝐡𝐚𝐥𝐟. For GPs, it’s a warning that if time risk isn’t managed carefully, LPs may start questioning whether the duration and risk of the asset class are still worth the reward. In venture, how much you earn matters - but how fast you earn it defines the outcome. 𝐖𝐡𝐞𝐧 𝐟𝐮𝐧𝐝𝐬 𝐬𝐭𝐫𝐞𝐭𝐜𝐡 𝐭𝐨𝐨 𝐥𝐨𝐧𝐠, 𝐞𝐯𝐞𝐧 𝐠𝐫𝐞𝐚𝐭 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞𝐬 𝐜𝐚𝐧 𝐥𝐨𝐬𝐞 𝐭𝐡𝐞𝐢𝐫 𝐦𝐞𝐚𝐧𝐢𝐧𝐠. 𝐒𝐢𝐠𝐧𝐚𝐥𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐍𝐨𝐢𝐬𝐞 🤓

Itzel Moncada provides excellent, data-backed clarity on what LPs truly value: not just deals, but the human capital, networks, and design of the GP. This is the traditional understanding of alpha. But there's a next-level evolution emerging. The highest future alpha won't just be found in a GP's existing network or experience. It will be generated by a GP's ability to architect new economic systems that create value in fundamentally different ways. We call this Coherence Alpha. Coherence Alpha is the excess return generated not from picking winners, but from orchestrating coherence—designing ventures where aligned incentives and shared intelligence create outcomes that are impossible in a traditional, adversarial investment model. A GP generating Coherence Alpha does more than syndicate deals from their network. They: Architect Coherence Zones: They design and co-found sovereign ventures (Coherence Zones) that solve systemic problems, transforming the GP's role from a capital allocator to a constitutional architect of new markets. Engineer "Staker" Alignment: They use mechanisms like the Stakeholder-to-Staker conversion to structurally align all participants (founders, customers, communities), turning the GP's network into a co-owned economic engine, not just a dealflow source. Measure System-Level Returns: They track success with System Phi (Φ), a physics-grade metric proving the venture creates super-linear value. This provides LPs with a new, rigorous proof of a GP's ability to create value beyond financial engineering. The data shows backing the right managers early is key. The frontier is backing the architects who are building the new operating systems for value creation itself. #VentureCapital #CoherenceAlpha #CoherenceZones #LPs #Innovation #SystemicInvesting

Everyone loves talking about unicorns and returns. But very few understand how a Venture Capital fund actually makes money itself. Not how it invests — how it lives. 👇 A fund has two main income engines 💼💰 💼 Management Fee — the fund’s salary. It covers the team, operations, reporting, and compliance. Usually around 2% of committed capital per year, decreasing as the fund matures. It keeps the lights on — not the partners rich. 💰 Carry (Carried Interest) — the fund’s bonus for performance. Typically 20% of profits above what LPs invested, but only after crossing the Hurdle Rate — usually 6–8% annualized return to LPs. Only when investors reach that minimum, the GPs start participating in profits. Let’s make it real 👇 Imagine a €100M VC fund: The management fee (2%) = €2M per year → pays salaries, audits, and reporting. Over a 10-year lifecycle, that’s roughly €15–18M total in fees (as it tapers down). LPs first must reach the hurdle rate: say 8% annualized, so they receive about €180M before GPs see a cent in carry. The fund ultimately returns 3x = €300M. → LPs get back €180M (their capital + hurdle). → Remaining €120M is profit above the hurdle. → 20% of that (€24M) becomes GPs’ carry. That’s when the GPs really make money. 💡 The takeaway? GPs don’t live off fees. They live for the carry — and they earn it only when their LPs do. ⚖️ The best funds master one thing: balancing fee discipline and carry ambition. That’s how you build not just a fund — but a repeatable investment business. 💬 Hint: GPs — big or small — have skin in the game. They typically invest 1–2% of the total fund themselves. Because alignment in Venture Capital doesn’t start with performance. It starts with commitment. 📈 The invisible side of Venture Capital isn’t boring — it’s where the value is really created.

At Venture Investors Health Fund, we are always paying attention to liquidity opportunities. Lack of liquidity has plagued the industry for the last few years because without distributions to limited partners, it becomes difficult for them to maintain their target allocation to venture capital without reducing commitments to new funds. The trend for IPOs has been positive this year, but it is like saying that western Nebraska is at a higher altitude than eastern Nebraska. It is true, but it is not the Rocky Mountains. The financial markets have always been adept at adapting to conditions. There are growth funds managing billions capable of rounds of hundreds of millions, amounts once only available through an IPO. Secondary activity is at an all time high and discounts have narrowed. That helps. Most venture capital firms are Exempt Reporting Advisors, capping their secondary participation at 20%, and if they exceed that, they must become a Registered Investment Advisor with a cost and regulatory burden that small firms can't afford. If the DEAL Act was passed, it would raise that to 50%, further improving liquidity. It alone isn't enough. In the 1990s, it was commonplace to do an IPO that raised $60M, resulting in a $300M market cap, with three respected analysts following the stock that had solid trading volume. Those days are long gone. The regulatory and reporting burden has increased substantially and the cost of being a public company has skyrocketed. The size of required filings has grown enormously, filled with required language that nobody reads except those preparing it and the regulators. Who is that benefiting? At the same time, the regulatory changes for investment banks made these small IPOs less attractive to underwrite. It is easy to understand why a company like HistoSonics, Inc. pursued private financing that offered secondary liquidity for some of its investors instead of going public at this time. They avoid the cost and distraction of being public, allowing them to focus solely on growing the company. However, other companies would benefit from a more accessible public market. The average investor would benefit too. We have half the number of publicly traded companies today versus 25 years ago. Individual investors used to be able to participate in the most promising emerging companies in their most dynamic growth phase by investing in new IPOs. Now most of these companies remain privately financed and are inaccessible to the average Joe. Some have suggested letting 401(k) plans invest in funds, but I am wary of allowing illiquid investments by those who rely on liquidity. The better answer is to make smaller IPOs more viable again. It is time for a thorough review of all of the regulatory burdens that have been added in the last 25 years. How many are really protecting the small investor, and how many are just needlessly stifling innovation by restricting liquidity and access to capital?

We analyzed hundreds of emerging fund managers and discovered something that will change how you think about venture capital fundraising. The fastest managers are not just moving quickly. They are fundamentally better at every aspect of fund management. Consider the numbers. Average Start Fund manager takes 58 days to close their fund. The fastest managers close in 24 days. That difference reveals everything about their approach to venture capital. Fast closers have better LP relationships. They can articulate their thesis more clearly. They have conviction about their strategy. They waste zero time on unnecessary complexity. The same pattern shows up in deployment speed. The average Start Fund manager takes 90 days from fund close to first investment. The fastest managers deploy capital in 36 days. This is not about being reckless. This is about being prepared. The fastest managers have been building their pipeline while fundraising. They know exactly which founders they want to back. They have already done the research and built the relationships. Slow managers treat fundraising and investing as separate activities. Fast managers understand they are interrelated. Limited partners invest in venture funds to get venture returns, not to provide asset management services for uninvested commitments. Successful emerging managers understand that venture capital is about velocity, not volume. They close funds quickly because they know what they want to accomplish. They deploy capital quickly because they know which opportunities to pursue. They generate returns quickly because they help their portfolio companies execute. Meanwhile, slow managers spend months in fundraising meetings explaining their strategy to LPs who will never write checks. They spend additional months evaluating deals they will never close. They spend years managing funds that never generate meaningful returns. Speed is not just an advantage in venture capital. Speed is the entire game. If you are building an emerging fund, optimize for decision velocity at every stage. Fundraise fast. Deploy fast. Generate returns fast. Everything else is just expensive inefficiency disguised as professional process.

Core VC Fund Terminology 1. Venture Capital (VC): Investment funds that provide capital to early stage, high-growth startups in exchange for equity. VCs aim for outsized returns (3x-10x) despite high risk (~80% startup failure rate). 2. Fund: A pool of capital raised from limited partners (LPs) to invest in startups. Managed by general partners (GPs). 3. Limited Partners (LPs): Investors (e.g., pensions, endowments, wealthy individuals) who provide capital to a VC fund. 4. General Partners (GPs): The fund managers who make investment decisions, source deals, and manage portfolio companies. 5. Carry (Carried Interest): The share of profits (typically 20%) that GPs keep after returning capital to LPs. Only kicks in after hitting a hurdle rate (e.g., 8% return). 6. Management Fee: Annual fee (usually 2% of fund size) charged by GPs to cover operations. E.g., a 100M USD fund might charge 2M USD /year. 7. Portfolio Company: A startup that a VC fund invests in. VCs typically hold equity in these companies as per valuation & investment 8. Cap Table (Capitalization Table): A spreadsheet showing ownership stakes in a startup (founders, VCs, employees). Critical for dilution discussions. 9. Valuation: The estimated worth of a startup. Pre-money (before investment) vs. post-money (after investment). E.g., 10M USD pre-money + 2M USD investment = $12M post-money. 10. Term Sheet: A non-binding agreement outlining investment terms (e.g., valuation, equity stake, voting rights). Often debated in 20VC episodes for “founder-friendly” terms. 11. Dilution: Reduction in ownership percentage when new shares are issued (e.g., in later funding rounds). A hot topic when VCs “overpay” at seed. 12. Exit: How VCs make returns—via startup IPOs, acquisitions (M&A), or secondary sales. Only ~20% of portfolio companies “explode” to deliver big exits. 13. IRR (Internal Rate of Return): Annualized return metric for VC funds. Top funds aim for 20%+ net IRR, median funds hit 10-15%. 14. MOIC (Multiple on Invested Capital): Total return relative to capital invested. E.g., 100M USD fund returning 300M USD = 3x MOIC. 15. Burn Multiple: Ratio of cash burned to revenue growth. High multiples (e.g., 5x) signal inefficiency, a red flag for VCs . #FinancewithSandip

The Hidden Math Behind Fund Scale: Why Bigger Isn’t Always Better in Venture Everyone talks about “shots on goal” in venture capital — the idea that larger funds improve your odds of catching a breakout. But when you actually model the probabilities, the math tells a more nuanced story. Take two early-stage franchises running the same strategy: • Fund A: $600 M fund, $8 M average check → ~75 companies • Fund B: $2 B fund, $8 M checks → ~250 companies • Assume each investment has a 0.5 % probability (1 in 200) of becoming a 50× outlier — the kind that drives fund-level returns. The probability of getting at least one 50× winner is: P(≥1 winner) = 1 – (1 – 0.005)ⁿ • Fund A → 31.8 % chance • Fund B → 71.3 % chance So yes — the larger fund improves hit rate. But each win has far less impact. A 50× exit contributes roughly $400 M in value, which equals a +0.67× uplift for the $600 M fund but only +0.20× for the $2 B fund. The big fund catches more winners, but each one moves the needle less. When you calculate the probability-weighted expected outcome, both funds end up in the same range (~0.20×). The smaller fund has lower hit probability but higher convexity — when it works, it really works. The larger fund gains predictability but at the cost of diluted upside. Implications for LPs For LPs, the key trade-off is between convexity and consistency. Concentrated allocators — family offices or smaller endowments with 5–10 venture relationships — benefit more from smaller, high-convexity funds. These may miss more often, but when they hit, each outlier can move the overall portfolio. When your venture exposure is limited, you want managers whose returns are “lumpy but meaningful.” Large diversified LPs — with 30–50 positions — already hold enough venture exposure that one extra $25M ticket to a small early-stage fund barely registers. Even a 4–5× return shifts total NAV by only a few basis points, while adding administrative and oversight burden. At that scale, a new small manager adds noise, not diversification. For them, scaled platforms with steady pacing and predictable DPI matter more than optionality from small, volatile funds. In short: Few relationships → seek convexity. Many relationships → seek consistency. Early-stage venture scales probability, not efficiency. Beyond a point, size doesn’t lift expected returns — it just changes where the variance sits. #PrivateMarkets #VentureCapital #FundEconomics #PortfolioConstruction #AlternativeInvestments #FamilyOffice

Most venture capital funds don’t make money. That’s not opinion — it’s data. Across the industry, roughly 65% of VC funds return less than invested capital after fees. About 5% of funds generate the vast majority of all industry returns, creating the extreme power-law dynamic that defines VC. Over 20 years, the Kauffman Foundation found that most VC funds they invested in failed to beat public market equivalents, and many returned less than invested capital. Cambridge Associates’ long-term benchmarks show the same pattern: median VC fund IRRs of ~6–8%, top quartile above 20%. (Source: Kauffman Foundation, “We Have Met the Enemy,” 2012; Cambridge Associates VC Index, 2024; a16z analysis of Horsley Bridge data) In other words: a few home runs make the game look winnable — but most funds strike out. 👉 So here’s the question: why do so many smart investors underperform? The answer may lie in what they don’t analyse. VCs talk a lot about investing in people, people, people. And that’s true — great teams matter. But counter-intuitive fact: teams don’t actually generate returns. The intangible assets they create do. Start-ups (and companies generally) hire smart people to create smart things. Those “smart things” — software, data, patents, brand, network effects, know-how, relationships – are intangible assets.  And those assets are actually what drive a venture’s future revenue and enterprise value. People are the pathway to that value. Unless it’s an acqui-hire, when Alphabet etc acquire a start up they are ultimately leveraging the software, network effects, regulatory approvals or brand of the company, not its people. Intangible assets scale, not people. Yet when you look at a typical VC due diligence process, there’s: ✅ Legal DD ✅ Financial DD ✅ Technical DD ✅ People DD ❌ Intangible Asset DD — almost never. This gap exists for many reasons, but the biggest is simple: intangible assets don’t appear on financial statements. And as Peter Drucker warned, “If you can’t measure it, you can’t manage it.” The omission of precisely the assets that drive venture value creates a major blind spot in how many VCs understand and evaluate venture risk. For example, we recently assisted a VC who was preparing an 8-figure follow-on investment in a portfolio company that had passed every conventional DD hurdle and appeared highly promising. Our intangible asset assessment told a different story. When we mapped the venture’s intangible assets, we found they were fundamentally flawed — weak asset ownership, poor defensibility, and high dependency on staff know-how. The conclusion: the company was unlikely ever to achieve scale. The fund walked away. That single insight didn’t just save them 8-figures. It protected the long-term performance of their fund — and its investors. 👉 If intangible assets drive startup value, why do so few VC due diligence processes mention them? #IntangibleAssets #VentureCapital #StartupValuation #Andersenconsulting

I read this with considerable interest yesterday, agreed with it, and then realised it doesn't actually tell you much about what intangible assets actually are. Here's a stab that you could use as a checklist: 1️⃣ People and Culture Human Capital - Your workforce's collective expertise and organisational culture matter more than individual skills. Companies that invest in development and retention programs unlock higher innovation and productivity, creating capabilities competitors can't easily copy. 2️⃣ Data and Intelligence Proprietary Data and Analytics - The real asset isn't just collecting data—it's using proprietary information for real-time decision-making, personalised customer experiences, and optimised operations. This can enable entirely new business models and sharpen your competitive positioning. 3️⃣ Customer Capital Relationships and Loyalty - Deep customer relationships reduce churn, support premium pricing, and generate referrals. This goes far beyond brand awareness to genuine trust and preference that directly impacts revenue. 4️⃣ Operational Excellence Processes and Know-How - Unique internal processes, supply chain optimisation, and specialised expertise create advantages that are hard to replicate. Think efficient logistics networks, proprietary service delivery methods, or streamlined systems that only exist in your organisation. 5️⃣ Network Effects Strategic Partnerships - Strong networks of partners, suppliers, and distributors open new markets, provide resource access, and leverage complementary strengths. The quality and depth of these relationships can accelerate growth significantly. 6️⃣ Innovation Infrastructure R&D Insights and Trade Secrets - Beyond formal patents, the underlying research insights, experimental data, and proprietary methodologies (secret formulas, specific processes) are often hidden but crucial for maintaining your innovation edge. 7️⃣ Adaptive Capacity Organisational Agility - The ability to make holistic decisions quickly, adapt to market changes, and even disrupt your own business model is a learnable organisational capability that ensures long-term resilience and growth. The bottom line These assets create significant, defensible value but rarely appear on financial statements. Companies that systematically identify, measure, and invest in them gain compounding advantages over time. What have you got in place? What works well for you? What's missing? My #postoftheday