Hi Reader,
This one is a bit of a hot take. When USV and Benchmark announced their biggest funds ever this fall, a lot of people read it as the end of the small fund. I see it differently.
Back in August, I gave a short talk to a room of emerging managers about what I call fee funds and carry funds. Once a fund gets big enough, the management fee becomes the business, and that changes which companies get funded. This piece builds on that talk. It covers what it means for founders and LPs, why AI makes small funds more interesting right now, and why we’ve chosen to stay on the carry end.
As always, I’d love to hear your thoughts. Don't hesitate to reach out!
Best,
Shruti
The Fee Became the Business
Why the biggest venture funds have stopped taking venture risk
By Shruti Shah, General Partner, Symphonic Capital.
Every few months someone declares the small venture fund dead. The latest round came this month, when Union Square Ventures announced $900 million across its new funds, its biggest raise ever, a few months after Benchmark raised $2 billion. For a long time, those were the two firms that everybody pointed to as proof you could stay small on purpose. Kyle Harrison wrote a thoughtful piece reading it as the end of an era, and a lot of people I respect nodded along.
But I actually don't buy it. Fund size matters, but I think we are focused on the wrong thing. To me, the more useful question is how the people running a fund actually get paid, and whether or not their paycheck depends on how the portfolio performs.
How a fund gets paid
Here's a quick primer on how funds work, because this part usually gets glossed over.
A venture fund pays its managers (the general partners, or GPs, people like me) in two ways. The first is the management fee, usually around 2% of the fund every year. That covers salaries, healthcare, rent, legal bills, and travel. The second is carried interest, or carry, which is usually 20% of the profits after investors get their money back. If you've heard "two and twenty," that's what it means.
When I teach this at UNC, students always focus on the twenty, which is the exciting part. But the two tells you more about how a firm actually works. On a $50 million fund, 2% is $1 million a year, which pays for a small team and not much else. On a $1 billion fund, 2% is $20 million a year, for the life of the fund, whether or not a single company ever goes public.
So once a fund gets big enough, the fee stops being overhead and starts being the business. That is how I would describe a fee fund. Fee funds grow by gathering more assets under management (AUM, the total money they manage), and what they're really selling to their investors is brand and access. The GPs can do perfectly well without ever picking a breakout winner, because the fees keep coming.
A carry fund is the opposite. The fee covers the basics. The GPs only make real money if they find great companies early and own enough of them for it to matter when those companies sell or go public. So what a carry fund offers its investors is judgment.
I gave a short talk on this in August at a conference for a group of emerging fund managers, called "Pick Your End of the Barbell." Picture a barbell: all the weight sits at the two ends, and the bar in the middle is thin. That's venture right now, with a few megafunds on one end, small focused funds on the other, and the middle hollowing out. My argument was that the two ends work like two different businesses, even though on paper they're set up the same way.
None of this is new, by the way. When Warren Buffett ran his investment partnership in the 1950s and 60s, he charged no management fee at all. He took a quarter of the profits above a 6% annual return, and took nothing if he didn't clear it. In other words, a carry fund.
Why fund size matters
Looking at funds this way changes how you think about fund size. It's a decision you make, and the math that comes with it is pretty unforgiving.
Here's the rule of thumb I shared in that talk: take your fund size and multiply by about 32. That's roughly how much total exit value (what your companies sell for, or are worth when they go public) your winners need to add up to, across companies where you own a real stake, for your investors to get three times their money back after fees. A $50 million fund needs about $1.6 billion of that. A $500 million fund needs $16 billion. A $15 billion fund needs something close to half a trillion.
This is a big part of why smaller funds tend to post the best returns. Over the past decade, the typical fund in the top quarter of performers was around $65 million, and in the top tenth it was around $38 million. It's just easier to grow a small pile of money than a giant one.
Venture returns follow what people call a power law, which just means a tiny handful of companies produce almost all the returns. Right now the very top of that curve keeps getting taller, with private companies valued in the hundreds of billions of dollars. A $15 billion fund needs those giants to make its math work, while a $50 million fund can do very well without them. A company that sells for $800 million is a rounding error to a megafund, but it could return a small fund all by itself.
What gets left out
So what's really going on with USV, Benchmark, and the funds even bigger than them? My read is that the more telling thing is which deals they choose. At their size, only giant outcomes move the needle, so the money goes into the same small set of companies everyone already agrees on, at prices that only work if those companies become some of the biggest in history. Some of them will, but plenty won't.
And the money is concentrated: in the first half of this year, three firms took in 48.1% of all the money raised by venture funds, according to the Q2 2026 PitchBook-NVCA Venture Monitor. That much money has to go somewhere, and a lot of it ends up chasing the same handful of deals.
Meanwhile, a lot of companies with real potential to be huge get left out, simply because they don't look like what everyone else is already funding.
The whole point of venture capital was supposed to be taking big risks on businesses that could win big. Writing the biggest check into the most crowded deal is close to the opposite of that. That isn't taking a big risk. That's following the crowd, and it's debatable whether you will actually get paid for it.
The fair objections
I know how this can sound coming from someone running a smaller fund, so let me take the obvious pushback head on.
The first is that this is easy to say when you can't raise a giant fund. Maybe. But I'm not upset about the fee model. It's a real business that works for the handful of firms that can run it. We just run a different one, and frankly I think it's a lot more interesting. Because we don't need every company to become a giant, we get to back a much wider range of businesses, including ones a megafund would never look at twice.
The second is that the biggest winners of this era were backed by megafunds. That's true of their later rounds. But look at who wrote the early checks. SpaceX's first institutional investor was Founders Fund in 2008, back when it was a roughly $220 million fund. Anthropic's first big round was led by individuals like Skype co-founder Jaan Tallinn. Uber's seed round in 2010 was led by First Round Capital, a seed fund, whose $510,000 check was worth about $2.5 billion when Uber went public. The megafunds came in later, at much higher prices. Venture needs both kinds of funds, and I don't have a problem with big funds existing. I'm more worried about how much of the money is piling into the same few bets.
The newer version of this argument is that you now need to write big checks from day one, because AI companies burn so much money on computing power. For the companies building frontier models, that's true. For almost everyone else, I'm not convinced. A lot of today's giant early rounds look to me like a bubble, with too much money chasing the same deals and pushing prices up. And as I'll get to below, AI is making most companies cheaper to build.
The third is that small funds also produce some of the worst returns, which is fair. Small funds have the widest range of outcomes, top and bottom. Small on its own doesn't mean much. The best returns tend to come from small funds that are focused and have a real edge in their market.
Why we stay on the carry end
The more money piles up at the top, the more good companies get overlooked at the bottom. Given the size of a megafund, a company that could become a $500 million or $1 billion business just doesn't register.
And AI is changing the math for those companies. It's making it dramatically cheaper to build a product and to serve customers. A company that once needed a big sales team, a call center, and years of fundraising can now reach real revenue with a small team and a lot less capital. Fewer, smaller rounds mean less dilution, so the people who backed it early keep more of what they own, which works in a small fund's favor. It also means markets that were assumed to be too expensive to serve, like healthcare for families on Medicaid or financial tools for hourly workers, can finally work as businesses.
I wrote recently about how this plays out in marketplaces, where the operations team used to grow every time the business did. AI agents now handle most of that work, so a marketplace that once needed a DoorDash-sized fundraise can get started on a seed round.
To be clear, at Symphonic, we are not funding frontier models. Training the most advanced AI models has cost hundreds of millions of dollars, sometimes more, mostly in computing power, and the companies building them have raised money at a scale only the biggest funds can match. Honestly, that's what megafunds are built for. Our companies are the ones using AI to do things like handle a clinic's paperwork or help someone apply for benefits, for a fraction of what it used to cost.
That's the part of the market we invest in. Symphonic invests in AI as infrastructure for underserved communities across health, wealth, and climate resilience. Some of these companies could turn out to be enormous, and since so few big funds are looking, we can get in early at prices that make sense. Others will end up as solid businesses, and at our size that can still be a great result, since we don't need a trillion-dollar exit to do well.
Finding these companies takes proximity, meaning being close enough to the people and the problems to see what others are missing. Megafunds don't spend much time that close to these problems, and given their math, it might be hard for them to justify it.
A few questions worth asking, depending on where you sit.
If you're a founder, ask your investors how their fund makes money. When I was building Move Loot, I learned that everyone on your cap table is working from their own math, and there isn't always alignment. A fee fund needs your company to keep growing into something enormous, because at its size only giant outcomes move the needle. A carry fund can do well on a much smaller exit, as long as it got in early and owns a meaningful stake. This matters most when an acquisition offer comes in. A $300 million sale can be life-changing for you and a great result for a small fund, while a megafund may push you to turn it down and keep swinging.
If you're an LP, ask your managers the same question, and then check whether the size of the fund matches the answer. Getting into the fund that backs the next Anthropic matters, though even that isn't a guarantee. If a giant fund only gets a small allocation late in the round, the win may barely move its returns. And if most of your venture money sits with the same few megafunds, you probably own a lot of the same crowded bets several times over. A few smaller, focused managers can give you exposure to companies the big funds aren't touching yet.
If you're a GP, pick your fund size deliberately instead of backing into it. Before you raise the next one, run the math: multiply the target by 32 and ask whether your strategy can realistically produce that much exit value at the ownership you'll actually have. If your last fund filled up fast, going bigger is tempting. But a bigger fund chasing the same kinds of companies with the same checks just makes the math harder.
That's the choice we've made. We only do well when our companies do, which is how I think venture should work.
Shruti Shah is General Partner at Symphonic Capital, an early-stage venture fund investing in AI as infrastructure for underserved communities across health, wealth, and climate resilience.