What LPs need to know

Samir Kaji, the CEO of Allocate, shared some hard truths about venture capital that every LP needs to hear…

VC is highly cyclical. It alternates between long risk-on periods followed by sudden risk-off periods. Only the inexperienced fund managers try to time these cycles.

Small seed funds consistently make up the majority of the top 10% and bottom 10% of funds in every vintage year.

Every decade, there is a new guard of firms that come in and become dominant long-term forces. The 2000s saw it, the 2010s saw it, and we are already seeing early signs of breakout new firms in the 2020s.

While DPI (Distributions to Paid-In) ultimately matters most, avoid drawing conclusions from funds <6 years old. Our data shows that some top-performing funds actually took longer to achieve their first meaningful DPI. The Carta and AngelList data is valuable, but being surprised by lack of DPI for 2020+ vintage years shows little understanding of the asset class.

Most importantly — For seed funds, having a real edge in sourcing and winning deals can be more important than picking ability. Brand and distribution matter.

My advice to LPs: Stay committed to the asset class, maintain a consistent deployment schedule across market cycles, and stick with the best managers. In the long run, the most disciplined capital allocators win.

(h/t to Samir for laying this out so clearly)