How do you achieve 3-4.5% additional IRR?
Our ability to generate 3-4.5% additional Internal Rate of Return (IRR) stems from a fundamental shift in how we approach venture capital investing. While traditional approaches rely heavily on relationships and gut instincts, we've built our strategy around data-driven fund selection and systematic risk mitigation.
The mathematics are compelling. When you invest in 25+ funds rather than individual opportunities, the probability of underperformance (defined as achieving less than 1.5x returns) drops dramatically from 26% to just 9%. More importantly, our risk-adjusted performance—measured by the Sortino ratio—improves from 0.7 to 3.0. This isn't theoretical; it's based on Vanguard's analysis of actual fund performance data.
Our edge comes from understanding that venture capital success isn't just about picking winners—it's about constructing portfolios that capture the full potential of innovation ecosystems. This requires four distinct types of diversification that most investors overlook:
Geographic Intelligence: We don't just spread investments across regions; we concentrate where the data shows superior returns. Israel, for instance, produces more unicorns per capita and per dollar invested than any other market, with exit valuations running 40% higher than global averages. Our local presence gives us access to deals and insights that foreign investors typically miss.
Vintage Sophistication: Market timing matters enormously in venture capital. The best vintages tend to emerge right after market corrections—2010-2011 after the financial crisis, 2003-2004 after the dot-com crash. Our approach ensures we're investing across multiple vintage years, capturing these cyclical opportunities while smoothing out the inevitable volatility.
Sectoral Precision: Where global investment in cybersecurity represents just 4% of total VC allocation, in Israel it's 22%. We leverage this ecosystem knowledge to overweight sectors where specific geographies demonstrate clear competitive advantages, rather than following generic allocation models.
Operational Risk Distribution: By accessing multiple fund managers simultaneously, we eliminate single points of failure that plague direct investments. Each manager brings distinct networks, due diligence capabilities, and sector expertise—creating a compounding effect that individual fund selection cannot achieve.
The additional IRR comes from what academics call "alpha generation through portfolio construction." Research from the National Bureau of Economic Research demonstrates that fund-of-funds in venture capital consistently identify and access superior-performing funds, particularly compared to direct investing constrained by limited fund access or manager selection skills.
This isn't about taking more risk to generate higher returns. It's the opposite—we're achieving superior returns precisely because we're taking less risk through intelligent diversification. The illiquidity premium inherent in venture capital already provides compensation for patient capital. Our approach captures that premium more efficiently by reducing the downside scenarios that typically destroy venture capital returns.
The result is a fundamentally different risk-return profile. While individual venture investments might deliver spectacular wins or devastating losses, our approach consistently delivers strong performance across market cycles. This is particularly valuable for investors who want venture capital exposure without the binary outcomes that characterize direct startup investing.
Ultimately, the additional IRR reflects the compound benefits of professional fund selection, systematic risk management, and ecosystem-level insights that individual investors simply cannot replicate on their own. It's not magic—it's methodology applied at institutional scale.