Compound

Build a firm, not a fund. Raise bigger funds, hire partners, institutionalize. Scale is the signal of success. Says the old wisdom. We think differently.

Scaling a fund isn't like scaling a company. Companies grow by serving more customers. But as a GP, your customers are your LPs, and you shouldn't be trying to serve more of them. You should be compounding relationships with the right ones.

Everything we believe about building a durable venture firm flows from one idea: design every piece of your business around what makes your flywheel spin faster.

find your edge > size the fund to your edge > the best founders will resonate > returns compound > coherent LPs re-up and refer > fundraising shrinks > more time to sharpen your edge

Fund size matters

We love sub-$20M for good reasons. Managers at that size can write $100–300K checks into a diversified portfolio of companies raising $500K–$1M. These companies are truly early, too small for platform funds to care about. The platforms would rather wait, pay more at the next round, and deploy into a clear winner. But even 1–3% fully diluted ownership in a breakout can return a small fund a few times over. That's the math that makes first-check investing interesting, and it's a flywheel that compounds: you build a reputation for being a first-check investor in a given niche, deals come to you beyond your network, you get to pick better bets, returns follow, LPs re-up.

The most cliché soundbite we hear from managers raising bigger funds: "I could have written a bigger check if I had the fund size to do so." In hindsight, it's easy to say you would've tripled your allocation into the winners. But you can't tell who the winner is when you're writing the check. If it was that obvious, why didn't you put the whole fund in that one?

Cross ~$20M and you're playing a different game. Larger fund means bigger checks, more mature companies, lower multiples, and ownership driving returns. That means leading rounds and competing with price-insensitive players who will push you down or push you aside.

Most importantly, you're breaking the flywheel. Every up-sizing changes your strategy, restarting the compounding clock. Most managers do this because they think institutional LPs expect it, or because they're focused on fees, or because they measure their ego in AUM. Seldom because the strategy demands it.

Numbers don't lie

Capital is bifurcating. It flows to established platforms offering institutional-grade product, and to small funds investing ahead of them in companies that don't yet justify a partner's time at a multi-stage fund.

42% of funds in the 2024 vintage were between $1M and $10M, up from 25% in 2020, while the $25M–$100M cohort dropped from 36% to 22% over the same period (Carta). Meanwhile, average fund size climbed 44% in 2024, driven by 30 firms who raised 75% of all U.S. capital (Carta). Nine of them took in $35 billion, half of the total raised that year (PitchBook).

The middle isn't contracting. It's being absorbed by a handful of winners at the top.

The question for everyone else isn't where the alpha lives, it's how you capture upside if you can't be an investor in the platforms that market-make the returns. The answer: be positioned where they aren't. At first-check, front-running the market makers.

In the 2018 vintage, the 90th percentile TVPI for $1M–$10M funds is 4.03x. For funds over $100M, it's 1.67x (Carta). Smaller funds post better returns at the top because they front-run versus compete. It's that simple.

Loyalty is rewarding

Here's where most managers break the flywheel. They treat LP composition as an afterthought: pitch everyone, take money wherever it comes, figure out fit later. The result is a co-op of HNW, family offices, and random strangers who don't fully understand what they bought into. When your strategy isn't compounding, the metrics won't show it, and they'll churn. Then you're always fundraising, always backfilling, always spending time on the one thing that pulls you away from sharpening your edge.

LPs who backed your small collaborative fund to get access to the best early deals aren't the ones looking for you to lead rounds and build an army of associates. Every time your fund size changes, so does your product, and your customer base with it.

The managers who close funds in weeks instead of months have spent years building a coherent customer base aligned to what they sell. Right product with the right customer who re-ups every fund and refers others who want the same thing. If 10% churn but you have 20% excess demand, you never actually fundraise; leaving you time to compound into what truly matters.

Stay small

We will die on this hill. The managers who resist the temptation to drift upwards post better returns than their peers. Not just because of the stage they invest in, but because they spend more time deepening what makes them great instead of constantly rebuilding a strategy and re-pitching an LP base that changes with every vintage.

Venture capital isn't about copying someone else's playbook. Benchmark and USV didn't get there by following a template. They found something unique and built around it. The question isn't "should I raise more?" It's "what does my edge require to compound?"