Key Takeaways

  • The institutional venture market exploded from roughly 500 firms to more than 4,000, diluting access and eroding baseline returns across the asset class.
  • Adams Street's proprietary dataset reveals that just 7% of venture-backed startups generate all industry gains, making fund-level power-law exposure the sole driver of net returns.
  • Historical track records are the most quantifiable metric in diligence, but Jeevarathnam treats them as the least reliable indicator of future fund performance.
  • Underwriting shifts toward intangible edge, specifically targeting partnership complementarity and managers with an chip on the shoulder from prior setbacks.
  • Adams Street screens allocations using the Adams Street's 3-Pillar Venture Manager Evaluation Checklist.

The Adams Street's 3-Pillar Venture Manager Evaluation Checklist

Pillar 1: Investment Team Assessment

Evaluate beyond table-stakes intelligence and domain experience. Look for: (1) Team chemistry and complementarity structured like a sports team (e.g., people-focused, numbers-focused, product-focused partners combining forces), (2) Partnership harmony to prevent leadership fallout, and (3) The 'X factor' or a chip on the shoulder (hunger driven by past setbacks, difficult departures, or something to prove) that fuels extreme hustle.

Pillar 2: Investment Strategy & Portfolio Construction

Underwrite the manager's core world view, target stage, portfolio construction model (target company count and target ownership percentage, such as 15% across 25 companies), and concrete right to win in their chosen sub-sector rather than chasing consensus.

Pillar 3: Historical Track Record

Analyze quantitative historical performance while recognizing it is purely backward-looking and the least predictive indicator of future fund success in changing markets.

When This Works (and When It Doesn't)

This framework applies when institutional allocators evaluate prospective fund managers across emerging managers (Funds I & II) and established franchises to assess forward-looking alpha generation.

It works because it strips away the false comfort of paper markups. In venture capital, a great track record often reflects a macro cycle that ended five years ago. A general partner riding a single early winner can print top-quartile fund returns for a decade while lacking the operational discipline to repeat the win. By subordinating the historical track record to team chemistry and strategy, allocators filter out lucky tourists.

Where the checklist breaks down is in the subjectivity of the X factor. Screening for a chip on the shoulder sounds rigorous in a memo, but in diligence meetings, it easily degenerates into narrative bias. An allocator falls for a charismatic pitch about overcoming adversity, mistaking grievance for underwriting edge. Furthermore, the framework assumes that early-stage math translates cleanly into later rounds. A 15% target ownership model across 25 companies breaks down rapidly when late-stage mega-rounds dilute ownership and demand massive follow-on reserves that smaller funds cannot support.

Why It Matters

The venture landscape has swelled from 500 to over 4,000 managers, but the distribution of returns has not widened. Adams Street finds that just 7% of companies generate all gains. When 93% of investments produce negligible upside, underwriting past returns is dangerous. Macro regimes change, partner dynamics splinter, and fund sizes bloat to capture management fees rather than carry.

As value creation stays private longer and software gives way to hardware and foundational compute cycles, capital allocators are treating venture funds less like fixed-income spreadsheets and more like sports teams. “There are many teams where it's like a basketball team,” (play from 10:14) Jeevarathnam notes. “There's a version of a center and a point guard... combined they make up for a force that is really hard to beat.” (play from 10:18) When capital is commoditized, edge comes down to how a small team operates under pressure and whether their ownership targets can survive brutal dilution.