Vertices Capital

In VC, fund size and stage shape the nature of returns and risk exposure.

New and emerging VC managers tend to run smaller funds, write smaller checks, and invest very early when uncertainty (and potential upside) is at its peak.

These early-stage, resource-constrained funds usually can’t (may not want to) double down with significant follow-on capital.

In traditional market terms, this is often described as ALPHA exposure, returns driven by skill, insight, or access that uncover outliers before the broader market recognizes them.

Alpha is typically uncorrelated with general market trends, it results from finding unique opportunities where risk and reward are asymmetric and value creation depends more on the manager’s judgment than on prevailing conditions.

More established VC firms, on the other hand, often deploy larger amounts, invest also at later stages, and reserve substantial capital for follow-on rounds.

Although still illiquid, their portfolios tend to move more in line with macro cycles, fundraising environments, and public market sentiment, a dynamic closer to BETA exposure.

Beta reflects systematic risk, the portion of returns explained by overall market movements rather than by manager-specific advantage.

As companies mature and data signals become clearer, later-stage venture performance often correlates more strongly with the broader venture and public markets.

Of course, this alpha/beta analogy is not a strict rule. Many seasoned early-stage firms deliberately stay small and continue placing high-conviction bets in areas of deep uncertainty.

Nonetheless, for new LPs, especially single and multi-family offices exploring VC investing for the first time, viewing funds through this alpha-versus-beta lens can provide a useful mental model.

It helps frame where a fund might sit along the spectrum, and guides how to combine different exposures when starting building a VC exposure.

GP-led continuation funds have become one of the most sought-after options in VC for GPs. For family offices new to venture capital, they can be tempting, so here’s what to consider.

The key challenge lies in seeing through structure to intent. A continuation fund lets a GP move mature ‘trophy’ assets from an older fund into a new one, thus extending ownership and offering liquidity to the older fund’s LPs.

It is not an exit, it is a reset that demands trust in both the assets and the GP. Family offices aren’t really equipped, but in case they want to test the waters, they must consider these three tests.

1. S/MFOs should start with why. Quality deals arise because strong assets need more time to realize value, not because the GP wants fees or a manufactured liquidity event.

2. True conviction looks like full carry roll-over and fresh GP capital (usually 3–5% of deal value). If GPs are not reinvesting meaningfully, LPs shouldn’t anchor for them..

3. Fairness and transparency are non-negotiable. S/MFOs should expect independent valuation, a competitive process, LPAC oversight, and enough business days for review

Continuation funds can be great exposure to proven assets, but only when purpose, alignment, and process stand up to scrutiny. For family offices, the right question isn’t ‘what’s the IRR?’, but rather ‘would I underwrite this GP again for another five years?’

When the answer is yes, as the underlying companies are known, diligence must shift from manager selection to asset trajectory. The focus should be on remaining value creation, exit visibility, governance integrity, and realistic horizons.

I’d suggest family offices new to being LPs in venture capital, avoid starting out with such vehicles, unless they’re building a special, consistent and dedicated resource to invest in VC.

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)

When analyzing GPs, the focus must first be on unsystematic risks, those specific to individual managers, their firms, and their funds. This includes cultural alignment with the family office’s values, the strength and quality of their networks, their investment strategy, and their capacity for effective team building. These factors materially impact performance and are the primary source of alpha in venture capital. Crucially, these risks diminish as family offices diversify across more funds and GPs, thereby reducing exposure to any single manager’s execution risk.

However, diversification alone cannot eliminate systematic risks. These overarching risks relate to the entire venture ecosystem, including VC market cycles, inherent liquidity constraints, macroeconomic shocks, and evolving regulation. Such risks persist regardless of portfolio construction and require a long-term horizon, disciplined commitment across vintages, and active scenario planning.

Importantly, family offices must strike a balance, conducting deep qualitative due diligence on GP-specific characteristics while maintaining awareness of broader market dynamics. Overemphasis on macro risks (’what vintage to pick?’), a mindset carried over from public markets, can obscure where real value lies in venture capital: understanding and embracing unsystematic risks.

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 be understanding a VC firm’s long-term viability and endurance by looking past returns, and focusing on organizational behavior.

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:

First, there is the GP story. The question should be: does the GP’s origin and values resonate with your family’s mission?

Then comes the investment process. Here too the question must be: is there a repeatable and disciplined strategy backing every portfolio decision?

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.)

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.

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).

SFOs and MFOs like to directly back startups, hoping that their “access”, connections, and intuition will find the next breakout. Yet most families discover quickly that picking winners in VC is a statistical game, not an exercise in genius..

When these investments go sideways or under (most), it is tempting to cite founder execution, market timing, external shocks. But numbers do not lie, and just as angels need tens of shots on goal to see return and DPI, seasoned SFOs/MFOs must learn that doing only a few deals rarely beats the odds.

Professional VCs accept that most investments will hit zero, so why wouldn’t SFOs/MFOs. Discipline is key in structuring portfolios, as much as timing deployment and commitment, knowing that momentum investing and vintage picking is the cost of the game. No matter the investor pedigree, no one can outplay probability. It is called “Power Law”.

The way to go for SFOs and MFOs is to implement robust risk management in VC, which means that it is crucial, when they start they VC exposure, to partner with experienced GPs and/or fund-of-funds. MFOs/SFOs should let time and thoughtful portfolio construction work in their favor, and not aim to “win” as a solo outlier. Time means minimum spending 1-3 cycles as an LP, before considering adding direct exposure.

The “direct deal” dream in VC is deceptively alluring for MFOs/SFOs.

We always talk about valuations as if they were ~facts of reality, such as “This X startup is worth A”. But in practice, valuation a framework to align interests, to benchmark progress, to structure risk, and to negotiate ownership.

Most VC educational materials present startup valuation courses titled “Valuation methods”. However, these courses should be titled “Valuation as a tool”.

The same startup can be valued at $30 million in one term sheet and $60 million in another, depending on preference stacks, liquidation terms, or even just investor appetite for scarcity. Both numbers can be “right”, because valuation is shorthand for a moment in time with a specific group of actors.

A VC’s valuation exercise helps justify an investment thesis. A founder might use valuation to motivate a team or attract credibility in the market. An investor “calculates” valuation to model risk, ROI etc. These are not the same exercise, they just use the same word. In summary, purpose defines the metric.

Also, a valuation often encodes things that cannot be modeled, such as trust in the founding team, belief in a macro trend, or even the narrative pull of being in “the category winner.” Valuation spreadsheets never reveals those intangibles, but they sit in the number nonetheless.

When as GP, an LP, a Founder, you stop treating valuation as absolute truth, you start seeing its real role. It is a tool for decision-making, alignment, and storytelling. And that shift changes how you use it, for instance instead of asking “Is this valuation real-fair-legit?”, the sharper question is “What is this valuation for?”.

Startup valuation is not a single truth, it is a lens. And like all lenses, it can distort as much as it can clarify.