Venture Fund-of-Funds: Established Managers

Interview Snapshot

Rohit Yadav: David, thanks for joining us. From a fund-of-funds (FoF) perspective, how do you approach strategic allocation to venture funds? Is it only about past investment performance?
David Clark: As an investor, we go back to first principles. The core question is: what are we trying to achieve by investing in venture capital funds? Historical data tells us that the average venture fund isn’t attractive—median returns are about 1.7x TVPI and a 9% IRR. We're not in venture for that. Our goal is to consistently reach upper quartile benchmark—we’re talking 2.5x multiples and high teens, 20% IRRs. That’s our bar.

“The average venture fund isn’t something you want to invest in…. Our goal is to consistently hit and beat the upper quartile benchmark…. We don’t think about the VC industry by geography or sector—only slightly by stage…. The best way to deliver consistent performance is to back the same great managers again and again…. We’re not trying to pick the best fund in a vintage—we're trying to deliver consistently top quartile returns.”

Rohit Yadav: So how do you actually construct such a high-performing portfolio?
‍David Clark: It’s about identifying managers who consistently back the top 1% of companies — fund after fund. And crucially, they must generate fund-returning outcomes from those investments. We don't get bogged down in geography or sector. Stage matters a bit, but we’ll come back to that.

Rohit Yadav: Let’s talk geography. You’re active in the US, Europe, China, and India. How did you decide to enter these markets?
David Clark: We don’t invest in managers just because they approach us — we haven’t done that in 20 years. Instead, we track which managers are backing top 1% companies. That gives us a list of 30 to 40 managers. From there, we filter: some are too big to produce fund-returning outcomes. Others are inaccessible. Eventually, we’re left with five to ten realistic targets we can build relationships with. In terms of entering new geographies, it wasn’t a top-down strategy. We followed managers we already backed as they expanded into China and India. That gave us exposure while also helping us build local expertise.

“We’re not macro strategists—we follow proven managers into new geographies like China and India…. Stage matters to us because early-stage takes a long time to return capital…. We manage our portfolio’s duration by balancing early-stage, growth, and secondaries.”

Rohit Yadav: You mentioned stage earlier. How do you think about early vs. growth-stage investing?
David Clark: Unlike geography or sector, we do actively manage stage exposure. Venture takes a long time — the average fund lasts longer than the average U.S. marriage. It’s often 10–15 years before you see meaningful liquidity from early-stage funds. So we aim for a roughly 50/50 split between early and growth-stage investments. We also include secondaries to help manage duration and generate earlier liquidity. It’s incredibly hard to get a top 1% company. If you have one, ride it. We advise our managers not to sell prematurely. We’d rather manage the duration at the portfolio level by diversifying across stages and including secondaries.

Rohit Yadav: Do you believe there are other ways to "win" in venture beyond your approach?
David Clark: Concepts of alpha and beta in venture are nuanced. The asset class is power law-driven—1% of companies generate over 50% of exit value. Aggregate industry return is closer to the upper quartile than to the median. So capturing "venture beta" — i.e., top quartile—is a strong result in itself. Chasing alpha by trying to consistently pick top decile funds adds risk. Some LPs overestimate their ability to select winners. One family office we know takes a more honest approach: they try to "index" early-stage by backing managers with minimal portfolio overlap. That gives them exposure to broader Seed market and its aggregate return.

“Capturing the 'beta' of venture—i.e., top quartile—is already very good…. Chasing alpha in venture can layer in additional risk…. The more you chase alpha, the more you might underperform in venture.”

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Rohit Yadav: The VC asset class is expanding, but your model is highly selective. Doesn’t that leave a lot of capital gaps?
David Clark: I see it differently. From an LP perspective, our job is to generate strong, consistent returns. Most VCs we talk to say the issue isn’t capital shortage — it’s a shortage of world-class founders. When capital is scarce and time is plentiful, venture works best. When the reverse is true — like in 2021 — you get capital inefficiency, inflated valuations, and poor outcomes.

Rohit Yadav: A theme I’m exploring: “startups should be harder to start but easier to build.” Could that help "de-power" the power law?
David Clark: It’s an interesting theory, but I’d push back a bit. At the seed stage, it’s almost impossible to predict which startups will succeed. You want a wide funnel of experiments. The best managers are great at allocating follow-on capital to winners as they emerge. Execution is everything. You need founders willing to commit 10 years of their life.

“Secondaries will grow long-term, even though they’ll fluctuate with market cycles…. Our secondary strategy is quality-first, not discount-first…. Big secondary players often can't access top-tier funds—we can because we’re already in them."

Rohit Yadav: Let’s go deeper into secondaries. What’s your strategy there and how do you differentiate from secondary-focused funds?
David Clark: VenCap actually started as a secondary firm back in 1989. We focus on buying LP interests in venture funds — not direct stakes in startups. Historically we’ve been opportunistic, but we recently hired someone to institutionalize this part of the business. Our core secondary thesis mirrors our primary strategy: we want exposure to top 1% assets. Buying at a discount isn’t our goal — quality is. Our best secondary ever was bought at a premium because it contained a company now worth $40–50 billion and is public.

Rohit Yadav: How do you compete with the large secondary funds?
David Clark: Many top managers don’t allow secondaries outside their LP group. Because we’re already inside, we often get first look. Plus, our valuation approach is different. Most big players apply a normal distribution lens. We assume 70% of companies are worthless and focus on the top 30%. And our portfolio insights — through our primary relationships — give us an edge in pricing.

Rohit Yadav: Do you think the secondary market will remain as vibrant if VC liquidity/DPIs returns?
David Clark: I think secondaries will always wax and wane with the cycle. In tight liquidity periods, they’re crucial. In looser markets, less so. But the long-term trend is clear — they’re becoming more acceptable in venture, like in private equity.

Rohit Yadav: For a first-time LP, how would you explain the risks of a FoF model?
David Clark: First, understand the power law. 60% of companies don’t return capital. You need exposure to the top 1% — that’s non-negotiable. Many new LPs start by investing directly — that’s a mistake. The odds are stacked against them. Also, don’t be seduced by compelling narratives. Most VCs are impressive storytellers, but few are truly exceptional. And don’t let ego get in the way. Some LPs want weekly chats with their managers. We speak with ours two or three times a year — we want them spending their time with founders, not us.

Rohit Yadav: Do family offices and institutional LPs ask you different types of questions?
David Clark: Yes. Family offices can move faster and often have specific, personal reasons for investing. Institutional LPs have more layers — impact reporting, ESG requirements, fee constraints. For example, many UK pension funds are capped on fees, which makes it hard to access top-tier venture.

“There’s no way to force top-tier access—it’s about long-term trust and alignment…. Common sense doesn’t work in venture—it's often inversely correlated with being right…. If you can’t access the best companies or funds directly, work with someone who can…. Don’t be seduced by narratives—great storytelling doesn’t always mean great returns.”

Rohit Yadav: As we wrap up, what do you think about the future of the emerging manager ecosystem?
David Clark: I don’t think venture is a single, monolithic asset class anymore. It’s already segmented. The best managers can still operate across stages. But yes, we’ve seen expansion, especially during the boom years. Now we’re in a reversion phase. Some first-time funds won’t raise a second. But I do think the long-term opportunity set is growing. Technology is eating more of the economy. Startups are capturing more of GDP. So while power laws will persist, both early-stage experimentation and later-stage predictability will offer great opportunities.