“We can have a clear idea of the consequences of an event, even if we do not know how likely it is to occur. I don’t know the odds of an earthquake, but I can imagine how San Francisco might be affected by one. This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty.”

– Nassim Nicholas Taleb, The Black Swan

‍

I’ve grown up in the emerging Australian tech sector. I’ve spent the past 15 years of my life working for founders or supporting new founders and since 2020 backing emerging founders at Galileo Ventures.

Along the way, I’ve met a growing number of wealthy individuals and family offices who are curious about venture capital. They usually ask the same core questions:

• Why should I invest in VC funds or startups?
• Which managers or funds should I choose?
• Should I back Australian funds, or look offshore?

In this article I want to share how I think about VC investing from the perspective of an active pre-seed VC in the sector. My goal is to help you answer those questions and offer a mental model for allocating into venture.

If you’re new here, this is part of our LP Notes series—an ongoing look at the topics that matter most to our LPs and other long-term backers of early-stage innovation.

Why invest or allocate to Venture Capital?

A common question I get is why should a family office invest in VC? 

My typical response is: How much of your dollars is for wealth building versus wealth preserving? 

The allocation perspective:

In Australia I like to say a lot of investors view property a bit like the stock market index fund – low risk, good returns, low volatility. Now one of the best performing and most expensive markets in the world, it's easy to see why with medium dwelling prices growing 46.7% in last 5 years.

The problem is, many Australian family offices I meet say they’re overweight in property investments (which is also an unproductive use of capital) and underweight in areas that historically generate far greater returns, illiquid assets like venture capital (extremely productive use of capital). 

For patient, long term investors parking a good percentage of wealth in VC is a fantastic strategy to capture potentially outsized returns. Just ask the world’s top endowments, who by and large consistently generated above market returns. Harvard and Yale famously have ~40% of their endowments in private equity (which includes significant venture capital fund investments). 

Many family offices I speak with have barely 1-2% allocation in VC. According to UBS family office report, Asia Pacific family offices have only 13% in all private equity, compared with 27% with US family offices.  

‍

According to Schoders, “High-net-worth families and family offices generally have lower exposure to illiquid assets compared to large endowments and may therefore have scope to increase their allocations. Where appropriate, we encourage these investors to steadily deploy capital into less liquid assets over time. This approach allows them to diversify across “vintages”, industries, and sectors, building broad exposure throughout the economic cycle. The largest share of the allocation will typically be directed towards private equity, but it could also include allocations to infrastructure, real estate, and private credit."

The innovation and returns perspective 

The other simple way to view this is what drives investment returns? New technologies that create new markets. The investors that invest (i.e. get access) in these types of companies are typically VC funds. 

So, what are the consequences of investing in a top performing VC fund? Comically high returns. Why? Because the most valuable companies have all been (typically) VC backed technology companies.

‍

In fact the top 5 companies today – Nvidia, Microsoft, Apple, Amazon and Google – were all initially backed by VC funds and now account for US$15 trillion in total market capitalisation. That's more than most national stock markets combined (ASX is $US2 trillion).

The allocation strategy should be one of getting exposure to companies that will come to define the market. Of course for this investment strategy to work you need a thriving technology sector for VC funds to invest in, which is now the case in Australia.

Beyond monetary returns however, many family offices I speak with also just have a desire to see their capital make a positive impact. Helping usher in new technologies and innovations into the world is one way to do this.

Should I invest in VC funds or directly into startups? 

This is a great question and my answer is typically, do both. 

Keep in mind your capital will go further investing multiple funds versus just investing directly with what you can immediately access. Doubling down on winners directly where fund managers allow (such as in Galileo funds) can help reduce risk and increase exposure. 

Getting exposure to successful startups is obviously important but there is a lot of work that goes into sourcing, diligence, supporting the companies growth and helping them raise more capital (ideally from top tier follow on investors). This is the reason funds charge a 2% management fee and in good VC firms I believe this fee is put to work in a meaningful way that drives better outcomes.

So, while most individual angel investors can invest in a few startups a year, a VC fund will typically do 8-12 startup investments per year and each fund might have 20-30 companies in a portfolio. 

Accessing ‘winners’ requires a portfolio of investments and the easiest way for a family office investor is to invest in VC managers whose sole job is to build these portfolios.

Portfolio construction is out of scope for this article but ‘getting access’ to founders and companies before they become successful is a very difficult task. Even the best VC firms in the world, such as Sequoia, still can’t invest in all the successful technology companies. 

Investing in VC funds is also a great way to learn and get market intelligence – what new technologies are being adopted? How are they being applied in the market? What new markets are emerging? 

From a simple allocation of $1m into 4 funds investing in 30 companies each (i.e. $250k per fund) will give you exposure to potentially 120 startups. Ask any angel investor with over 100 investments and they’ll tell you how much work that entails.

The other view of investing venture funds is building optionality. A venture fund is a portfolio of 'call options' on potential future winners. As Yavuzhan Yilancioglu describes in his essay, “Both out-the-money call options and early-stage investments rely on trading fat tails, extreme events of low probability. The investor knows that the chances of a payout are low, but the chances of an extreme payout are not as slim as many other market participants (or a normal probability distribution in the case of call options) would think…For LPs, all these mean that one needs to position in markets that have high volatility and are reasonably priced, be it certain domains or geographies (emphasis added), or certain pockets of talent, to maximize the upside asymmetry.”

‍

Which VC strategies to invest in?  

There’s a saying in VC, ‘your fund size dictates your strategy’.

What this means in practice is how much money you manage will dictate how much you need to invest in each round and thus what stage of the company lifecycle curve you invest into. For example, only investing pre-seed rounds with medium round size is $750k will only work for smaller funds. 

‍

‍

Generally speaking as more established VC firms start to grow their funds under management (FUM) they change their strategies to deploy more capital. This means the set of VC competitors they go up against also changes. Deploying 20 x $200k cheques is not going to work when your fund is $500m. Yes, one may shoot for the stars but where your firm's focus is will be in the later rounds e.g. Series A+. The problem then is at Series A you enter a very competitive part of the market with very long established VC brands.

‍

‍

Today we have both multi-billon dollar multi-stage firms such as Sequoia, Insight, Index, a16z and closer to home in Australia now Blackbird and Airtree manage over $1b across funds. They all try to invest across all stages but for LPs this means a couple of important things:

1. Minimum LP commitments go up to participate (eg multi-million dollar commitments)
2. Total fund level returns decline (its harder to return 10x on a $1b fund vs $10m fund)
3. Access into perceived top tier funds gets harder (more capital chasing limited supply)

‍

Small is beautiful 

Almost all experienced VCs will tell you that a VC firm's first few funds are typically their best performing and that small funds produce better returns for LPs. 

Data from 1,500 VC funds below shows strong correlation between size and performance (and thus your probability of backing a winning VC fund manager). Smaller funds tend to outperform larger brand names. Another signal is to look at average performance: according to Cambridge Associates data from 1980–2018, returns decline as fund size increases—averaging 2.3x for funds under $50M, 2.1x for $50–200M, 1.8x for $200–500M, and just 1.6x for $500M–$1B funds.

Our early experience with Galileo Fund I ($10M)  shows this to remain true. We’re typically sitting in the top 15-10% of all VC funds against benchmarks which is a great signal (The caveat is that you should judge funds on total dollars returned net of fees which means you have to wait a total of 10-12 years for the final scorecard).

So why don't more family offices invest in new VC managers at the seed stage?

‍

That's a great question and one I ponder a lot. For institutional investors it's a matter of risk and the amount of capital they have to put to work typically makes it impossible to back small fund managers. But for family offices they don't have these restrictions and should lean heavily into this strategy.

At one level it's quite simple – if you buy shares in the next Google before most investors your total return will of course be much higher when you sell. But at a deeper level you have to think about where the next Google might be founded, who will have access and what sectors it may emerge from. 

I think on some level it comes down to family offices having to source and filter VC managers, just like they might do when directly investing. Picking a good set of VC managers is no simple exercise and requires work. It comes down to your belief on the individual manager and their ability to generate outsized returns. 

How much and where you invest on the curve will have a material impact. Small funds can bring a material amount of return even though their portfolios may be far more volatile than later stage investors. Importantly as companies grow, the perceived less-risky strategy of backing more mature private tech unicorns can also be quite fraught as shown by the Instacart IPO figures below. Early investors generally did well before the Series C. Post that most investors ended up underwater.

‍

‍

How to pick the right VC managers to invest?

The obvious disclaimer is that I’m a VC manager that is raising funds but in this case I thought I would share how I think about VCs I meet and co-invest with and what makes them stand out to me.

Why do some VC managers consistently outperform everyone and others don't? This is a question I ponder a lot.

Take Chris Sacca’s first fund, Lowercase fund 1 reportedly returned 204x DPI. Manu Kumar of K9 Ventures first fund was only $6m and returned 100x capital. Choosing a type of VC manager and then finding the best ones you can is a great place to start when looking to allocate into VC. In both the above cases these were ‘small, operator led funds’ where the VCs had experience and access. The results were shared on a fascinating podcast from the founder of fund of funds investor which only focuses on seed funds globally (Cendana).

For most family offices I recommend you think about:

• Start with Funds, Not (just) Direct Deals: Use GPs to learn the ropes and access diversified startup exposure before branching into co-investments or direct investing.
• Diversify Across Funds and Vintages: Spread allocations across managers, sectors, and years to manage risk and capture returns across market cycles.
• Back the Right People, Not Just Big Brands: Prioritise GPs with aligned incentives, disciplined fund size, and clear edge in sourcing or supporting companies –– emerging managers can outperform.
• Be Patient: Commit for the long haul, re-up in top performers, and avoid overreacting to early paper losses—returns come in years 7–10+.

For some example questions you can ask yourself: 

• Sectors: Where do you want exposure to e.g. AI, software or deeptech and who invests early in those sectors?
• VC Referral: Which VCs do VCs rate in those sectors? And similarly what to founders say?
• Personality Fit: Do you personally like the VC managers?
• Holistic Performance: What can you learn from their past investments and performance? 
• And most importantly: Why do they have access (or ‘the right’) to back the best founders?

Marc Andressen recently said on a podcast that VC is perhaps the only asset class where “the entrepreneurs pick the investors”. Good founders really do seek out good VCs to pitch too and as they raise more capital the ability to access their funding rounds gets typically much harder.  

Generally speaking (I’m biased of course) I recommend family offices allocate to newer up-and-coming VC firms, see how they perform and double down on those that win. As they grow their FUM think carefully about when is the right time to stop and reinvest the proceeds back to the next cohort of top performers.

‍

The VC fund cycle and when should you invest? 

I’ve come to believe that venture capital moves in cycles—just like public markets—but the key drivers are technology waves rather than macro forces. Each new platform shift creates the conditions for a fresh generation of breakout startups.

For family offices, the opportunity is to invest early in these cycles. In Australia, the 2010–2012 cloud wave saw the birth of today’s top-tier funds like Blackbird and Airtree. In the U.S., earlier vintages captured the same shift, reflecting its more mature venture ecosystem.

We’re clearly in the early innings of the AI cycle, which will produce some of the biggest winners of the next decade (see a slide from Coatue VC presentation that illustrates this well). 

History shows these winners tend to become far larger than anyone predicts, while the losers only become obvious in hindsight—and it’s rarely the first movers who triumph.

‍

‍

The Globalisation of VC 

I like to remind myself that venture capital is still a relatively young industry that emerged around the 1950s after WWII. The first proper VC funds led to funding the first semiconductor startups, among other innovations like offshore drilling. 

As a result venture capital used to be a hyper-local asset class. The best startups raised money from investors in their city. Today, that playbook is obsolete. As innovation spreads, so too has venture capital. What was once dominated by Silicon Valley has grown into a global ecosystem.

This matters for family offices in two important ways:

1. Opportunity is now global: Top-tier startups are emerging in unexpected places. Estonia gave us Skype, Australia gave us Canva, and China gave us TikTok. I like to say you could guess which area the world's next decacorn would be founded. Now it could be founded anywhere. As startup formation becomes easier and remote work becomes the norm, geographic boundaries are breaking down. Family offices that limit themselves to VC exposure in one geography risk missing out on incredible value creation.

2. VC ecosystems in growth geographies are maturing: Australia is a prime example. Just a decade ago, it was nearly impossible to raise a seed round locally. Today, Australia is home to multiple $1B+ funds, unicorns across fintech, SaaS and climate tech, and a growing pool of serial founders. Australia is the world's most efficient unicorn creator based on dollars invested too. Other geographies like Southeast Asia, India, and parts of Europe are seeing similar trends.

Today around 50% of venture capital is happening outside the United States. As new tech hubs mature, the opportunity for family offices is to identify and back the best managers operating in those geographies early, before global LP capital floods in. 

Adding high-quality emerging market managers is a strategy many of the world’s top endowments and funds of funds now follow.

For family offices, the takeaway is clear: VC is now a global asset class, and your investment strategy should reflect that.

You Don’t Need to Predict, Just Be Positioned

For new and established family offices venture capital should be seen as an essential part of their allocation strategy, even though it can seem opaque, risky, and hard to navigate. But for long-term oriented investors with patience and curiosity, it’s also one of the most powerful engines of wealth creation and innovation.

The goal of this piece was to simplify that decision tree. Why VC? Why now? How much? Where to start?

My recommendation is this: allocate modestly at first. Invest in a few funds. Track performance. Build relationships. Learn from the managers. Then double down where it works.

Start with managers who: 

• Operate smaller, earlier-stage funds
• Have operator or founder experience (i.e. understands founders)
• Have founder references and real access
• Are trustworthy – transparent, thoughtful, and founder-aligned

From there, layer in direct investments if you’re resourced for it, and think globally about exposure. 

And most importantly: remember that VC is a long game. It requires conviction without certainty. You won’t always know the odds, but you can understand the consequences. Or, to paraphrase Taleb: focus less on the probability of the earthquake, and more on how to be positioned when it hits.

VC won’t be for every investor. But for many modern family offices, it offers access to the next generation of great companies—and a seat at the table where the future is being built.