with Marc Penkala, General Partner at āltitude
EUVC Academy · 1h 4m · Fund Modelling, Portfolio Management
Part of Fund Modelling Series
Fund modelling in venture capital is the discipline of designing how a fund deploys capital and turns it into returns. It matters because outcomes are driven less by picking winners and more by how portfolios are constructed, scaled and managed over time.
This session focuses on portfolio construction and decomposition as the core levers of fund performance. It covers how to build a portfolio across entry and follow-on investments, track its evolution over time and break it down through asset development, write-offs and exits.
The emphasis is on using a practical, model-driven approach to link investment decisions, dynamics and trade-offs directly to overall fund performance.
Key Learning Points
Fundamentals of VC fund construction
Fund size shapes portfolio size, cheque size, reserves, LP fit and return profile
Portfolio construction is a key lever, balancing diversification with the ability to generate and support high-quality investments
Venture outcomes are driven by outliers, where ownership and follow-ons determine the relevance of returns at fund level
Fund performance reflects risk appetite and timing, where larger wins, not fewer losses, and entry and exit timing drive outcomes
Portfolio construction and deployment strategy
Construction must align with thesis, deal velocity, drawdown capacity and team bandwidth
Portfolio size and diversification increase the probability of returning capital and improve the likelihood of capturing outliers
Follow-on strategy concentrates capital into a smaller set of higher-conviction companies over time
Entry valuation discipline impacts hit rates and the exit thresholds required for fund-relevant outcomes
Decomposition and return distribution
Fund returns follow a skewed distribution, with most investments delivering limited outcomes and a few driving overall performance
Alpha is rare, making losses an expected part of the portfolio rather than something to optimise away
Portfolio size acts as a probability lever, increasing exposure to outliers
Portfolio realisation includes write-offs, recycling capital, de-risking and timing exits, shaped by market conditions
Model design and performance simulation
Fund models are built bottom-up, tracking individual investments through entry, follow-ons and exits
Decomposition translates portfolio construction into company-level outcomes, modelling write-offs and exits over time
Key metrics such as TVPI, NAV, DPI and RVPI are used to track how portfolio decisions translate into fund-level performance
Models are used to test assumptions, reflect variation in company outcomes and sanity-check the feasibility of the strategy
