If Smaller VC Funds are Better, Why Aren’t Funds Smaller?

The SVB Capital report showed that venture funds between $50 - 250 million generate higher returns than funds over $250 million.. and the best performing funds fall between $50 - 150 million. (Study didn’t include funds with less than $50 million in capital)

The report argues that smaller VC funds generate higher returns for four reasons:

1. The venture capitalists in small funds are more motivated to generate returns since the fees they receive for managing capital are smaller.

2. Small-fund VCs have better sector and geographic expertise, which allows them to get better deals.

3. Small funds can earn a high return if they identify just a handful of winning investments, rather than having to identify many successful start-ups to make money.

4. Small fund expertise makes them good partners for top tier funds, allowing them to join better syndicates.

article at openforum.com