Will You Return the Fund? What VCs and LPs Really Want | Sion Evans

February 3, 2025

23mile

What Does It Take to Succeed in Venture Capital When 60% of Deals Lose Money?

Sion Evans is Managing Director  at VenCap, one of the longest-established fund-of-funds in venture capital. Founded in 1987, VenCap manages over $2 billion and has made more than 500 commitments to VC funds across the US, Europe, China, and India.

VenCap maintains just 12 core manager relationships, obsessively focused on accessing the top 1% of exits that drive the majority of venture returns. Their portfolio has exposure to companies like Google, Facebook, Airbnb, Stripe, ByteDance, OpenAI, Anthropic, and SpaceX.

Sion joined VenCap 10 years ago after spotting a vaguely worded job ad for "technology investing based in Oxford." A maths graduate who expected the role to be about numbers, he quickly learned it was all about relationships. He was recently promoted to Investment Director after building deep networks with the world's top-tier VC firms.

In this episode, Sion pulls back the curtain on how LPs actually think: the venture maths founders need to understand, why 60% of deals losing money is fine, and what separates the VCs who consistently access generational companies from everyone else.

Agenda:

  • Introduction: One of the biggest blind spots for tech founders is understanding how the venture model actually works. Sion Evans operates at the top of the capital stack. He picks the VCs who pick the founders.

  • State of Venture Capital: 2025 is on track for the lowest fundraising in a decade. Why this might actually be healthy. The explosion of undifferentiated funds in 2020-21 and what happens when too many chase too few opportunities. "There's no middle class in venture."

  • The 2021 Fallout: Some companies (Databricks, Revolut) have grown into their valuations. Others are still trying to grow into 2021 prices. VenCap's managers took proactive write-downs in 2022 because they didn't need unrealized gains to raise their next fund.

  • What is a Fund-of-Funds?: VenCap explained simply: "The money behind the money." They raise capital like a VC, but invest in VCs instead of startups. Where they sit in the ecosystem alongside pension funds, family offices, and endowments.

  • VenCap's 40-Year Longevity: Focus and long-term relationships. Why being exclusively focused on venture creates consistency. Feedback loops in venture take over a decade. Sion has been at VenCap for over 10 years and is only now finding out if his early investments were right.

  • Why VenCap Backs Generalist: All 12 core managers are sector generalists. VenCap doesn't think they can pick sectors as an LP. "If it's obvious to us, it's probably three to five years too late." Old meeting notes on Facebook in 2005, Uber at launch, OpenAI three years before ChatGPT.

  • How VenCap Selects Managers: It's about what managers have done, not what they say. Multiple models can work. Boutique partnerships and large platforms both succeed. The key question: do the best founders in the world want to work with you?

  • The Long-Term Nature of Venture: Don't start a company because you want to. Do it because you have to. Even the very best startups have near-death experiences. "Funding your friends to firing your friends."

  • The Power Law Explained: The power law applies at every level: founders, GPs, LPs. Industry-level returns in venture are "pretty bad." Top quartile rarely exceeds 3x DPI. The best managers consistently hit roughly 3x, and when things go right, north of 5x.

  • What Creates the Floor on Performance: Counterintuitive insight: the floor comes from focusing on upside. Even exceptional funds lose money on 50-60% of their deals at early stage. Fund returners (single investments returning the entire fund) are what matter.

  • How Top Managers Stay Consistent: Even in their relative down years, the best managers are still accessing companies which for most VCs would be a generational deal. Multi-billion dollar exits. "If you don't have access to them, it can be a really tough asset class."

  • VenCap's Actual Performance Data: Lower quartile of VenCap's 100+ core manager funds since the late 1980s: roughly 1.6x. Lower decile: 1.2-1.3x. They've also seen funds fail to return capital and some approaching 0x. But never from their core manager group.

  • Advice for Emerging Managers: Be introspective about your reason for existing. "What's your right to exist?" Back up what you're saying with data or powerful anecdotes. VenCap has to raise money too. They empathize with the fundraising journey.

  • Going Direct with Storytelling: Harry Stebbings as an example of going direct successfully. VenCap has become more active sharing research and data on LinkedIn and Twitter. Authenticity matters. Say something you truly believe.

  • VenCap's Best Year of Exits: Despite the industry drought, VenCap has had one of their best exit years. Listings from Figma, Circle, Klaviyo, Wealthfront. The Scale/Meta transaction. Wiz: the largest ever VC-backed M&A at $32 billion to Google.

  • The Private Mag 7: VenCap's exposure to companies that could IPO: Stripe, Xiaohongshu, ByteDance, Databricks, Revolut, SpaceX, OpenAI, Anthropic. "If even one of those were to go, people start to call them the Private Mag 7."

  • The Rise of Secondaries: Secondaries have matured significantly in venture. Now a normal part of portfolio management. VenCap's advantage: they can price transactions because they have data from multiple managers in the same companies.

  • Alternative Strategies (Distressed, AI Roll-ups): VenCap doesn't focus here but trusts their managers to take opportunities around the edges. Strong alignment in venture. Managers are motivated by carry and are "the most hyper-competitive people you can ever come across."

  • Is AI a Bubble?: VenCap pushes back on the "bubble" framing. Valuations are frothy, but fundamentals are real. Cursor reached $1 billion ARR. "The growth rates are like nothing we've ever seen." OpenAI and Anthropic backers see a path to multi-trillion dollar businesses.

  • UK Venture and Global Ambition: UK founders' level of ambition has changed significantly. Everyone's talking about global maxima. Revolut as an example. No ambitions to just be number one in UK neobanking. US managers now coming to UK and Europe to back the best founders at seed and Series A.

  • Sion's Path into Venture : Knew very little before applying. Had watched David Swenson's Yale lecture series online. First interview made it sound ten times more interesting.

  • Ten Years at VenCap: The privilege of "looking over the shoulders of some of the best investors ever." Early exposure to OpenAI, Anthropic, Waymo. The first Waymo ride: "I don't think I'll ever forget that feeling."

  • The Mark Zuckerberg Meeting Notes: Old VenCap notes on Facebook: "Some guy in jeans and a t-shirt. Apparently kids were spending more time on it than MTV." That's the entire line about a future trillion-dollar company. "It keeps you humble."

  • From Maths Graduate to Relationship Builder: Sion was "terrified" of networking early on. The thought of walking into a room and talking to strangers was the worst thing imaginable. Now it's one of his favorite parts of the job.

  • How AI is Changing VenCap's Work: Using AI to translate documents, clean data, produce presentations. Portfolio company Gamma can create entire decks from prompts. "This is the worst this technology will ever be."

  • Advice for Young Graduates: Think about what's hard. Impressive people have CVs full of really difficult things. Elite sports, PhDs, starting companies. "If you've done something everyone knows is hard, that's always valuable."

  • Would Sion Ever Start a Company?: Probably not. Nothing has made him say "I have to drop everything and build that." Goes back to the advice: do it because you have to.

  • VC vs Bootstrapping Advice: Make sure you're aligned with your investors' goals. If you want slow and steady but take money from someone who wants hyper-growth, you're going to have a bad time. "If you're raising from a tier-one manager, it's not just can you become a unicorn, it's can you return a billion dollars to their fund."

  • Best Career Advice: The power of being consistent. Will you follow up with people on a regular basis for multiple years? "It's not about being the most talented. It's about being the most consistent.


    KEY TAKEAWAYS

  1. The floor on performance comes from chasing upside. Even VenCap's best managers lose money on 50-60% of deals. What separates top funds is hitting one or two companies that return the entire fund.

  2. Top 1% of exits generate 50%+ of all venture returns. Roughly 30 companies per year drive half the industry's value. If your VC isn't consistently accessing these companies, the maths doesn't work.

  3. There's no middle class in venture. Funds are either massively oversubscribed and find fundraising straightforward, or really struggling. The distribution is binary.

  4. Manager selection dominates fund size debates. VenCap's data shows the performance gap between their core managers and the industry is 1.5x, while the gap between big and small funds is only 0.2-0.3x.

  5. Fund returners are the only metric that matters. A fund returner is one investment that returns at least the entire committed capital of the fund. This drives the floor on performance.

  6. Know what you're signing up for. If you're raising from a tier-one VC, they're underwriting you to return a billion dollars to their fund. Not to become a unicorn.

  7. If it's obvious to an LP, it's three to five years too late. VenCap trusts their managers to spot trends because by the time it's clear to fund-of-funds, the opportunity has passed.

  8. Consistency beats charisma in venture relationships. Following up, doing what you say, and showing up repeatedly over years matters more than being talented or extroverted.

Memorable Quotes

"The last couple of years you've been funding your friends. Now you're going to be firing your friends." - Sion Evans (quoting a VC partner on 2021 turning into 2022)

"If it's obvious to us as LPs, it's probably three to five years too late." - Sion Evans

"There's no middle class in venture. Most funds are either massively oversubscribed or really struggling." - Sion Evans

"Where the floor in performance comes from is not from managing downside. It's from focusing on upside." - Sion Evans

"Don't start a company because you want to. Do it because you have to." - Sion Evans

"This is the worst this technology will ever be." - Sion Evans (on AI tools)

"Some guy in jeans and a t-shirt. Apparently kids were spending more time on it than MTV." - Sion Evans (reading VenCap's old meeting notes on Mark Zuckerberg presenting Facebook)

"If you consistently do what you say you're going to do, you'll find that things work out very well." - Sion Evans


Links And Resources Mentioned


Companies (VenCap Portfolio Exposure):

  • Databricks: Enterprise AI and data platform

  • Revolut: Global neobank

  • Stripe: Payments infrastructure

  • OpenAI: AI research and products (ChatGPT)

  • Anthropic: AI safety company (Claude)

  • SpaceX: Space transportation

  • Wiz: Cloud security (acquired by Google for $32B)

  • Waymo: Autonomous vehicles (Alphabet)

  • Figma: Design collaboration

  • Circle: Crypto payments (USDC)

  • Gamma: AI presentation software

  • ByteDance: TikTok parent company

  • Xiaohongshu: Chinese social commerce platform

People Referenced:

  • David Swenson: Former CIO of Yale Endowment

  • Mark Zuckerberg: Facebook/Meta founder

  • Harry Stebbings: 20VC podcast host

  • David Clark: VenCap CIO

Concepts:

  • Fund returner: Single investment that returns at least 1x the entire fund

  • Power law: Distribution where small number of outcomes drive majority of returns

  • DPI: Distributions to Paid-In capital (realized returns metric)

  • J-curve: Early negative returns before fund matures

  • Secondaries: Buying existing positions in funds or companies


    CONNECT WITH SION

    •   LinkedIn: Lloyd Lobo

    •   Company: vencap.com

    •   VenCap on LinkedIn: linkedin.com/company/vencap-international-plc

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