Key Takeaways

  • Washington University in St. Louis grew its endowment from under $8 billion to nearly $20 billion under Scott Wilson, producing $17 billion in gains over nine years while cutting all 36 of its hedge funds.
  • The primary reason WashU fires a venture capital firm is lack of valuation discipline, specifically partners who chase deals priced at 100 times revenue.
  • Wilson does not penalize managers for deploying capital rapidly, provided their underwriting standards remain strict.
  • WashU prefers a manager who raises a disciplined $1 billion fund every 18 months over one who raises a $10 billion fund every three years.

Missing Valuation Discipline Gets Managers Fired

Scott Wilson built one of the best track records in institutional finance by stripping away noise. When he took over the WashU endowment, he eliminated all 36 hedge funds in the portfolio and leaned directly into high-conviction positions, including direct stakes in private companies like SpaceX. That aggressive posture drove $17 billion in net gains.

When Harry Stebbings asked Wilson for the dominant reason WashU decides to churn a venture manager, Wilson did not point to missed software waves or personnel turnover. His answer was immediate: "discipline around valuation."

Institutional allocators tolerate market drawdowns, but they drop managers who abandon pricing sanity during bull runs. Wilson pointed directly to partners who lost their heads during peak market cycles: “We had one partner that I'm not sure he found a 100 times revenue deal that he was willing to turn down. Like it just didn't exist.” (play from 36:04) When a venture firm treats entry price as an afterthought, institutional money exits.

Small Rapid Funds Beat Bloated Mega-Funds

Venture capital firms often assume that LPs measure discipline strictly by calendar years. Many managers believe that deploying a fund in 18 months looks reckless, while pacing it across four years signals caution. Wilson views that assumption as flawed.

WashU does not care if a manager invests capital quickly, provided each company meets a rigorous hurdle. What destroys returns is asset gathering. When firms triple their fund size, they dilute their return multiples and are forced to write checks into rounds where pricing makes mathematical sense impossible.

Wilson wants managers who resist fund bloat, even if it means raising capital more frequently: “We'd much rather have someone who raises, you know, a billion dollar fund when they could raise four billion and comes back every 18 months than someone who raises, you know, 10 billion and comes back every 3 years.” (play from 37:29) He highlighted one core partner as the top investor in WashU's entire book specifically because he stays pragmatic on check size and valuation instead of chasing headline numbers.

What to Do With This

Audit your cap table and your current lead investors this week. Identify which venture partners pushed you into an inflated valuation that now blocks your next financing. When pitching new leads, stop bragging about high valuation targets; test them by asking how they underwrite entry pricing to deliver a ten-times multiple from your current metrics.