The Architecture of Returns

Higher returns invite a second question

If one group of funds earns higher returns, is it taking more risk, or using that risk more efficiently? The Architecture of Returns, the Institute's second white paper, takes up that question. It follows an earlier study of emerging and established venture managers' performance.

For an LP, the distinction matters when comparing managers. For a GP, it opens a useful discussion about portfolio design: company count, check size, deployment and the outcomes those choices are associated with. An observed relationship can inform that discussion without promising what a particular fund will earn.

Two studies, two questions

White Paper I, Why Emerging Venture Capital Managers Matter, examines performance in 2,471 U.S. venture funds raised from 2000 through 2024. White Paper II, The Architecture of Returns, examines risk-efficiency in a separate study universe of 2,142 funds. The number with complete observations varies by measure.

Keep those samples and measures together when using the findings. An internal rate of return (IRR), which expresses annualized performance, is different from a ratio that compares return with risk. Neither is the same as a product score.

What the second study finds

One measure compares a fund's IRR with the spread of returns among funds of the same vintage. The other, called tail capture, compares total value to paid-in capital (TVPI) with the median TVPI for that vintage. TVPI includes both distributions and the value still held in the fund; it is not simply cash returned to investors.

The distinction helps keep the question precise. Higher return, greater variation and more efficient use of risk can coexist. The paper investigates how those patterns relate to portfolio choices; it does not establish that changing any one input will cause a fund to outperform. For the separate question of how concentrated venture outcomes are, see the power law debate.

How Architecture uses the research

Colibrí Institute conducts independent research. Colibrí Strategies develops the proprietary Architecture Methodology and the platform that applies it. Architecture draws on the Institute's public findings alongside other research and documented model assumptions.

That connection does not make every product threshold an empirical finding. The research, the methodology's calibration choices and a score calculated from your inputs are different layers. Read the score as a diagnostic of the recorded fund design, with the limits stated beside it, rather than a forecast of returns.

Read the research in context

The Institute's research pages explain the studies, their methods and their current availability. White Paper I is available through the Institute; White Paper II is forthcoming. This library explains the findings by title and does not distribute the papers. Start with the relevant study below when you need its definitions, tables or limits.

Sources

• The Architecture of ReturnsColibrí Institute · White Paper IIThe Institute's risk-efficiency study, with a 2,142-fund study universe. The research page describes findings and current availability.
• Why Emerging Venture Capital Managers MatterColibrí Institute · White Paper IThe earlier performance study of 2,471 U.S. venture funds across 2000–2024 vintages. Its sample and performance measures are separate from White Paper II.