If you’re a CFO working in venture capital (VC) funds and scaling startups, it's important to consider lessons from larger funds like Stanford’s $43 billion endowment and the challenges they face as they grow, based on the article's key points: 1. **Scaling Challenges**: The endowment model used by Stanford is effective at its current size but may not scale efficiently for much larger funds, such as those exceeding $100 billion. This signals that fast-growing funds need to adapt strategies as they increase in size. For VC funds or scale-ups, this means developing scalable operational practices that can handle increasing amounts of capital while maintaining efficiency. 1. **Asset Allocation Constraints**: As a fund's size increases, maintaining target allocations in various asset classes, like early-stage venture capital, becomes more difficult. This is crucial because it influences how you construct a diversified portfolio. For a growing VC, this might mean revisiting and potentially readjusting investment strategies to ensure balanced risk exposure. 1. **Manager Selection**: With larger funds, there might be limitations in accessing top-tier managers, particularly in sectors like venture capital. This restricts the ability to invest in the best opportunities, which could affect returns. For VC funds, maintaining a network of relationships and due diligence capabilities is vital to ensuring access to high-performing managers and deals. 1. **Performance Requirements**: Meeting payout obligations while growing the endowment necessitates targeting high returns, often with a significant equity risk component (about 70% in Stanford’s case). Smaller funds or growing VCs might need to tailor their risk and return profile to their specific payout needs and growth ambitions while being mindful of the increased risk that comes with higher equity exposure. 1. **Talent Strategy**: As funds grow, talent acquisition and retention become crucial to maintaining performance. Larger funds often require a strategic approach to human resources to ensure they attract and retain the skills needed to manage increased fund complexity. This is applicable to VCs and scale-ups, where building a strong team is integral to navigating growth challenges. In summary, while larger funds like Stanford’s endowment provide a model for growth, certain aspects such as scaling, asset allocation, manager access, return requirements, and talent strategies require tailored approaches for VC funds and scaling companies. These highlights suggest focusing on flexible growth strategies, maintaining diversity of the investment portfolio, and building strong management teams as funds expand.

source : https://www.top1000funds.com/2024/10/stanford-ponders-the-challenges-of-scale-in-endowment-style-investing/