At a time when venture capital is being reshaped by higher capital costs, longer exit timelines, and increasing specialization, building an institutional-quality venture portfolio has become both more critical—and more complex. When we sat down with Sion Evans, Managing Director at VenCap, in Vienna during 0100 DACH a few weeks ago, he made it clear that the answer lies not in overengineering portfolio construction, but in mastering its fundamentals.
“Only a small number of companies create the vast majority of value,” Evans explains. “So the key question is: how do you consistently access those companies?”
Back to Basics: The Power Law Still Dominates
Despite evolving market dynamics, the core mechanics of venture capital remain unchanged. Returns continue to be driven by a tiny fraction of outliers—often the top 1% of companies. For Evans, this reinforces a highly concentrated strategy focused on backing a select group of top-tier managers globally.
Rather than allocating capital based on geography or sector quotas, VenCap follows a bottom-up approach: identify managers with repeatable access to exceptional founders, then assess diversification as a secondary outcome—not a starting constraint.
This philosophy challenges a common LP instinct. “If you start by saying you want exposure to a certain sector—like AI—or a region, and then try to find managers to fill that bucket, that’s often the wrong way to do it,” Evans notes.
Access Is the Real Differentiator
In today’s competitive environment, access to top-tier funds is often cited as a key advantage—but Evans draws a clear distinction between perceived and genuine access.
For VenCap, true access means building a portfolio without compromise—never needing to include lower-conviction managers just to deploy capital. This discipline extends to fund sizing itself: capital raised is aligned with realistic deployment capacity into high-quality managers.
“It’s very easy to describe our strategy, but very hard to execute,” Evans says. “We size our funds based on where we have conviction—not the other way around.”
Concentration vs. Diversification: Avoiding “Naive Diversification”
While diversification remains a requirement for institutional portfolios, Evans cautions against what he calls “naive diversification”—adding managers simply to increase portfolio breadth.
Historical experience has reinforced this view. Portfolios with a larger number of managers did not necessarily perform better; in fact, they often diluted returns. Today, VenCap operates with a concentrated roster of roughly a dozen high-conviction managers globally.
The implication is clear: in venture, diversification should never come at the expense of quality.
The Expanding Role of Secondaries
As liquidity cycles lengthen, secondaries have become an increasingly important tool in venture portfolio construction. At VenCap, secondaries represent approximately 20% of the portfolio, complementing both early- and late-stage exposure.
Their role is twofold. First, they provide earlier liquidity by acquiring stakes in more mature funds. Second—and perhaps more strategically—they allow investors to increase exposure to proven winners.
“We’re effectively doubling down on the very best companies,” Evans explains, citing exposure to companies such as SpaceX, Databricks, and Rippling through secondary transactions.
Liquidity: A Portfolio-Level Reality, Not a Market Myth
While industry narratives often emphasize a liquidity drought, Evans offers a more nuanced perspective. At the portfolio level, outcomes can vary dramatically depending on exposure to top-performing funds.
“If you had concentrated exposure to the right companies, liquidity has actually been quite strong,” he notes, referencing major M&A events and IPOs across the portfolio.
This reinforces a central theme: venture outcomes are highly asymmetric—not just in returns, but in liquidity as well.
Rethinking Early vs. Late-Stage Convexity
A common assumption in venture is that early-stage investing provides the greatest upside. While Evans acknowledges the role of early-stage “outliers,” he emphasizes that late-stage investing can also deliver significant convexity—particularly as private market valuations scale to unprecedented levels.
With companies now reaching $100 billion or even trillion-dollar valuations, growth-stage investments can still generate meaningful multiples. Additionally, higher concentration at later stages—often with single investments representing up to 10% of a fund—amplifies return potential.
AI: A Byproduct, Not a Strategy
Despite the surge in AI-focused funds, VenCap has not pursued dedicated AI managers. Instead, it relies on top-tier generalist—or “serial specialist”—managers who consistently access leading AI companies.
This approach avoids the risk of making premature sector bets at the LP level. “We don’t think LPs are best placed to make those calls,” Evans explains. “If you’re backing the best managers, you’ll get exposure to the most important companies anyway.”
A Simple Model—That’s Hard to Execute
After deploying more than $3 billion across multiple cycles, Evans returns to a deceptively simple conclusion: success in venture is about consistently backing managers who back exceptional founders.
“It’s a very simple game,” he says. “The challenge is executing it consistently.”
In an increasingly global and competitive venture ecosystem, where capital, talent, and opportunity flow across borders, this discipline becomes even more critical. The best founders partner with the best investors—regardless of geography—and institutional portfolios must be constructed with that reality in mind.
Ultimately, for VenCap, the formula remains unchanged: prioritize access, maintain conviction, and let quality drive outcomes.
