It's time to retire the One-Size-Fits-All Definition for Venture

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There's a familiar narrative resurfacing: that venture capital is broken. I've heard versions of this before—back in 2001 and again in 2010—each time tied to moments of transition in the industry. Today, the concern is that firms have grown too large, too institutional, and too far removed from what venture was initially intended to be. But as the asset class has scaled—now approaching $3 trillion in NAV—and evolved with multi-product platforms, RIAs, and massive fundraises, it's clear the traditional definition of venture no longer fits. In truth, it hasn't for nearly a decade. The industry hasn't broken—it's evolved.

Clinging to a purist lens obscures how the industry has changed (and is not going back).

Venture capital today isn't a single, neatly defined asset class—and it shouldn't be viewed through the narrow lens that's dominated for the last 50–60 years: high-risk, early-stage investing aimed at generating outlier returns. That model still exists, but it's only part of the picture. The modern venture landscape looks more like a barbell.

On one end, smaller, early-stage managers are playing the classic power-law game. Conversely, multi-billion-dollar platforms operate more like private equity firms. Both live under the "VC" moniker but are dissimilar in almost every critical way.

This isn't a bug. It's a feature of a maturing asset class. But if LPs don't recalibrate —and how they benchmark and allocate, they risk being misaligned on both ends of the barbell.

The Barbell Structure of Today's Venture Market

In 2024, an estimated 65% of all VC capital flowed to just 30 firms. That concentration level is staggering—and a clear signal of where the industry is heading. These firms aren't just raising massive flagship funds; they're raising $3–$8 billion per cycle, often across multiple strategies at once: seed, growth, crossover, credit, infrastructure, and even PE-style control vehicles. It's no longer far-fetched to expect interval or semi-liquid products next. This isn't "venture capital" in the traditional sense—it's full-scale asset management tucked in a tech and innovation wrapper.

At the same time, there's been a parallel surge in emerging managers and sub-$250M funds, many of which stay true to the traditional venture ethos—focused on early-stage opportunities, substantial power-law dynamics, and long-dated outcomes. These purist models often run concentrated portfolios of 25–35 companies and lean heavily on access, conviction, and sourcing within their preferred investment thesis.

The contrast in operating philosophy and product design between these two ends of the barbell is so stark that they effectively represent two distinct asset types. The divergence from fund size and portfolio construction to return profile and liquidity expectations is fundamental. Each strategy demands infrastructure, skill set, and, most importantly, a nuanced LP underwriting approach. Yet, the industry continues to group them under a single umbrella.

Doing so obscures the structural reality of the market today and leads to misaligned expectations, benchmarks, and allocation decisions. Speaking of benchmarks, despite the industry's barbell nature, most performance benchmarks lump all these firms together, creating wildly misleading data sets.

Let’s take an example: Consider a $50M fund investing in 25 pre-seed companies, which is being compared to a $6B platform deploying across late-stage deals, follow-ons, and secondaries. The return drivers, business model, etc, are fundamentally different. So is the risk. And the dispersion.

The result? LPs try to make allocation decisions based on blended benchmarks that reflect neither strategy well. It's like comparing small-cap biotech with mega-cap private equity and using benchmarks to guide decisions w/o accounting for the differences in risk.

The Purist VC: Big Upside, Bigger Dispersion

The small fund size of the barbell can be highly desirable if done correctly and programmatically.

Small cap (<$250MM funds) offers the highest upside, but the dispersion of returns is massive.

Outperformance in small fund venture doesn't come from writing a few checks a year and hoping for the best. It requires a deliberate, programmatic strategy that accounts for the complexity and breadth of this segment.

Over 2,000 firms fall on this end of the barbell, with 400–700 small funds attempting to raise annually. But they're not all the same. This segment includes:

• Emerging managers: often first- or second-time fund managers, sometimes spinning out of top-tier firms or founder networks, but still early in their track record development.

• Established seed/early-stage managers: firms that have built strong reputations and results but deliberately choose to stay sub-$250M to $500M to maintain strategy integrity, ownership discipline, and alignment with early-stage dynamics.

These two groups present different types of opportunities and different diligence challenges. But what unites them is that the real winners—the 10–15% of funds capable of generating 3–5x+ net—are hard to identify, diligence, and/or access.

To consistently have proper risk-adjusted returns in the purist/small fund world, LPs need:

• Institutional-grade sourcing infrastructure: Identifying the top 10–20% of small fund managers requires meeting a high volume of firms to enable meaningful pattern recognition and comparison. Most institutional programs will meet with 300–400 managers annually, not to back them all, but to continuously calibrate against the broader universe and surface true outliers. With hundreds of new funds launched each year and high dispersion of outcomes, a wide sourcing aperture significantly increases the odds of consistently identifying top performers, primarily as many of the most promising funds are fully allocated before becoming broadly visible. Relying on traditional networks or seeing just a handful of managers yearly is unlikely to produce the right portfolio.

• Refined pattern recognition: With hundreds of managers articulating similar investment theses, the ability to separate true differentiation from surface-level polish is critical. This involves assessing not only pedigree or past firm associations, but also examining unique sourcing channels, evidence of founder pull, alignment between strategy and structure, and signs of consistent execution edge.

• Diligence depth: For many emerging managers, quantitative track records may be limited or incomplete. In these cases, robust qualitative diligence—including off-sheet references, back-channel feedback, and triangulation across a trusted network—is essential to understanding a manager's judgment, value-add, and investment discipline.

• Early and consistent relationship-building: Access remains a key constraint, even among smaller funds. Many top-performing managers close allocations quickly, often favoring existing LPs or those with long-standing relationships. As a result, proactive engagement, ongoing dialogue, a history of consistency and predictability, and a reputation for commitment can be decisive in securing allocation.
  
  Ultimately, success in the small fund segment hinges on a repeatable, institutionalized framework, not episodic or opportunistic investing. Given the extreme dispersion of outcomes and long tail of underperformance (along with vintage year variability), consistently building a top-performing small fund portfolio requires volume at the top of the funnel and precision at the bottom, and is supported by the proper infrastructure, network reach, and evaluative rigor.

Yet for most LPs, time becomes the most significant constraint. Venture capital may only represent 5–10% of their total portfolio, and small funds—particularly sub-$250M or emerging strategies—often account for just a fraction of that allocation. In practice, these investments might represent 2–3% of total exposure, making it difficult to justify the intensive sourcing, diligence, and relationship-building effort required to execute this well.

Mega-Caps

On the extreme other side of the barbell, the game is about platform scale, access to breakouts, and capital allocation.

Top mega-firms now ($10-15B+ In AUM):

• Own growth rounds of breakout companies

• Participate across multiple stages (from seed to pre-IPO)

• Run multi-product platforms that give investors products with different risk/return profiles.

While mega-funds may have capped upside relative to early-stage specialists, the downside is also more limited. When executed well, these larger strategies can still outperform PE, especially when firms gain access to breakout companies and can double and triple down at scale.

But even in this model, selection still matters. Only 10–15 firms globally have demonstrated the ability to execute consistently at a multi-billion-dollar scale. There are more that can operate effectively in the $500M—$1B range, where return profiles tend to be slightly higher, but so is risk.

The key takeaway for investors is to stop viewing venture capital as a single strategy or monolithic asset class. Like hedge funds or private equity before it, venture capital has matured into a multi-strategy sub-asset class, each requiring distinct underwriting lenses and portfolio construction philosophies.

For LPS, evaluating how to participate:

• For purist VC (typically sub-$500M funds): underwrite for talent, edge, and thesis clarity. This is a high-variance area where success depends on having a repeatable framework for discovery, relationship development, and deep diligence. Understandably, most LPs do not have the time, expertise, and network to do this well consistently.

• For mega-funds and large platforms: underwrite for brand strength, founder draw, and operational excellence, including firm structure, team depth, and go-to-market execution. Here, the focus is all about access.

Ultimately, both sides of the barbell can play a valuable role in a portfolio, but they require fundamentally different playbooks.