Are Larger Funds Associated with Worse Returns? Micro-Funds + SPVs Are Becoming the New Standard in VC
The traditional 10-year blind-pool VC fund is being challenged by a hybrid model: small managers using lean "micro-funds" alongside deal-by-deal SPVs for follow-on co-investments. This structure lowers blended fees for LPs and allows GPs to focus on early-stage investing. The article argues this "small fund + SPV" approach is mathematically and incentive-wise superior to a single large fund. It highlights how better infrastructure has reduced SPV operational costs, and growing LP demand for co-investment rights is driving adoption. A survey of 56 GPs shows high SPV usage, primarily for follow-on capital, with LP-friendly terms (0-0.5% management fee, 16-20% carry common). The model aligns GP incentives with fund success, as micro-funds enable focus on early-stage, high-conviction bets without pressure to chase larger, later rounds. The shift towards more co-investment represents an evolution away from over-extended fund terms and misaligned fee structures.
marsbitIeri 11:49
