VC Fundamentals

I recently joined Myrto Lalacos at The Emerging VC for a masterclass on Emerging VC Fund Math. I explained how VC fund managers should use the VC Portfolio Construction Matrix I built to help them ensure their fund math makes sense, and will win LPs’ approval.

I feel for Emerging GPs on this topic. Portfolio construction is one of those areas where everyone has a view, and nearly every answer ends with “it depends.” Fund size matters. Reserves matter. The number of initial investments matters. Entry ownership matters. Dilution matters. Exit values matter. The power law matters.

At the same time, portfolio construction can make or break credibility with LPs. Spend too little time on it, and you won’t convince LP digging into the numbers. However, spending too much time on it may distract GPs from talking to entrepreneurs to test the investment thesis and raising the fund.

The purpose of the masterclass was to help Emerging GPs understand how they can very simply verify that their fund model assumptions make sense given their investment thesis. I showed the online participants how top LPs and GPs think about it, and how they stress-test the model.

In this article, I’m insisting on a few elements that surfaced in the masterclass. Scroll down to watch the video.

Investment Committees are where VC firms make their most consequential decisions: make a risky bet on a non-consensus startup or kill a future 100x investment opportunity. In an asset class driven by power-law outliers, getting those decisions right is a real competitive advantage.

Yet, too many Investors settle for middle-of-the-road IC rules that invite errors of omission (missing the odd outlier). Without realizing it, their committees drift toward confirmation bias, status games, groupthink, or excessive caution.

In contrast, elite VC firms understand that the quality of the decision does not depend on the deal’s features alone. Voting structures, sponsorship models, hidden vetoes, and internal status all influence what gets approved or rejected in the Investment Committee meeting.

I’ve participated in Investment Committees since 2008 and spent years studying how Venture Capital partnerships make high-stakes decisions. The clearest lesson from that work is that most IC errors are not failures of intelligence, but of process.

In this article, I break down how Sequoia, Benchmark, Kleiner Perkins, Khosla Ventures, Founders Fund, and a handful of other elite VC firms structure their Investment Committees to surface non-obvious opportunities that lead to outlier outcomes.

Investment Committee Memos (IC Memos or Deal Memos) are the backbone of Venture Capital decision-making. Yet, even though examples from top firms have circulated online for years, they remain difficult for the untrained eye to understand, and even harder to emulate. Too many newer Investors treat the memo as a defensive document: a place to list risks, hedge their position, and protect themselves if the company goes south. The result is an IC Memo that describes an opportunity without building conviction.

It’s not a harmless writing flaw. When Investment Committee Memos fail to make a balanced argument, IC members struggle to make sound decisions. Firms risk leaving a fund returner on the table, making an error of omission (passing on a rare 100x opportunity) that is the asset class’s capital sin. Weak IC Memos also leave behind a poor decision trail, which matters not only internally – follow-on and bridge commitments become harder to assess – but also when LPs diligence a firm’s decision-making processes.

The best VC firms approach the exercise differently. Their Investment Committee Memos do not ignore risk, but they do not obsess over it either. They identify the main uncertainties, then explain why those risks are acceptable and what evidence supports that view. The real art of the IC memo lies in its Risks & Mitigants section: the ability to show, with data and reasoning, why the VC firm can be comfortable underwriting uncertainty. In examples from teams such as Sequoia and Bessemer Venture Partners, that comfort often comes from expert input, analogies to adjacent markets, or sensitivity scenarios that clarify both upside and downside.

I have written IC memos since 2008, studied hundreds of them over the years, and trained dozens of VC professionals worldwide in the craft of writing them. The clearest lesson from that work is that effective Investment Committee Memos come from mindset, not structure. Under extreme uncertainty, elite VCs do not default to caution but build a conviction argument. Instead of focusing on potential losses, they lay out realistic paths to exceptional outcomes, explain what needs to happen to produce the best-case scenario, describe the metrics to follow post-investment, and identify value-add actions to take in the first 100 days.

This guide breaks down how strong Investment Committee Memos are built, where newer Investors tend to go wrong, and how to write one that helps IC members make better decisions. It also includes a downloadable VC Investment Memo Template you can adapt to your own firm.

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