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Slipstream embraces that successful fund managers will eventually raise funds too large for its mandate. Rather than viewing this as a loss, they see it as a feature that creates portfolio churn, forcing them to constantly source new, emerging managers and keeping the work engaging.
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The optimal strategy for solo VCs is to resist the urge to scale fund size. Instead, they should raise smaller funds (sub-$50M) and deploy them on faster cycles (e.g., every 18 months). This approach aligns with LP constraints, avoids competition with larger firms, and enables the high portfolio velocity (80+ companies) needed for the solo GP model to work.
A concentrated portfolio of star managers creates an impossibly high bar for new talent. To solve this, Hewlett Foundation carves out a separate 'next generation' book. This allows them to test promising new relationships with a lower confidence hurdle, enabling portfolio evolution without disrupting the core.
Borrowed from private equity, continuation funds allow a GP to move a prized asset from an old fund into a new vehicle they still control. This provides liquidity to LPs in the original fund who can choose to cash out, while others can roll over and continue to ride the winner.
Micah Rosenbloom of Founder Collective argues that keeping fund sizes small is a strategic choice. It aligns the firm with founders by making smaller, life-changing exits viable, maintaining founder optionality, and focusing on multiples rather than management fees from a large AUM.
The fund-of-funds model, often seen as outdated, finds a modern edge by focusing on small, emerging VC managers. These funds offer the highest potential returns but are difficult for most LPs to source, evaluate, and access. This creates a specialized niche for fund-of-funds that can navigate this opaque market segment effectively.
To maintain discipline and resist raising larger funds, Founder Collective ensures its General Partners are collectively the largest Limited Partner. This structure forces intense alignment with other LPs, prioritizing cash-on-cash returns (DPI) over the asset-gathering and management fees that larger funds often optimize for.
Due to massive fund growth, PE firms are shifting focus. They allocate resources to winning portfolio companies and use liability management to extend runway for underperformers, rather than committing fully to every investment. This portfolio-centric approach differs from the traditional model of being deeply married to each deal.
The primary risk to a VC fund's performance isn't its absolute size but rather a dramatic increase (e.g., doubling) from one fund to the next. This forces firms to change their strategy and write larger checks than their conviction muscle is built for.
An 'ugly truth' of venture is that LPs often stay with large, multi-partner funds, despite their challenges, because it's the only way to access the handful of truly great, outperforming investors within them. LPs must tolerate the broader fund structure and its drawbacks to gain exposure to this elite talent.
As Partners Capital grew from $6B to $30B, they found their best existing managers were closed to new capital. To maintain returns, they had to develop a new capability: underwriting emerging managers, which required a dedicated physical presence to build relationships with this new talent pool.
