The Concentration Game: Why Institutions Are Writing Bigger Checks to Fewer Venture Funds

One of the trends that we noticed on our last trip to the US is a restructuring of institutional venture capital allocation. The old model—diversified exposure across many managers—is giving way to some LPs concentrating partnerships with a few elite firms.

This represents a strategic evolution driven by the realities of power law returns, operational constraints, and the access economy that governs top-tier venture capital.

For institutions with the scale and relationships to execute this strategy, concentration offers a path to outperformance. For those without, it creates a permanent disadvantage.

The middle ground is disappearing. In venture capital, as in venture returns themselves, the future belongs to concentrated winners.

The question every CIO must answer: are you confident enough in your manager selection to bet the portfolio on it?

Today's institutional investors are cutting their number of GP relationships —while simultaneously increasing their capital commitments.

The shift is notable, deliberate, and accelerating.

Venture capital operates on a power law: a tiny fraction of investments generate the vast majority of returns. What institutions now recognize is that this same dynamic applies to fund selection itself.

A small number of venture funds consistently capture outsize returns. These firms have proprietary deal flow, brand recognition that helps portfolio companies recruit talent, deep operating expertise, and the network effects that compound over time.

Being a significant LP in Benchmark's Fund XIV matters more than being a small LP in 15 different mid-tier funds. The math is unforgiving.

This concentration trend is creating a self-reinforcing dynamic. As institutions write larger checks to secure access to top funds, the bar for entry rises. Emerging managers and smaller institutions get squeezed out entirely.

The result: venture capital is bifurcating into a two-tier system. Elite funds with $1 billion+ vehicles can cherry-pick institutional LPs willing to commit $50 million or more. Everyone else competes for the remaining.

For CIOs at well-resourced institutions, this creates opportunity. For everyone else, it creates a moat that by fund 4/5 needs to be crossed.