At the Alma Summit, the conversation turned quickly to a question that preoccupies every serious LP: what actually separates a good VC from a great one? LPs have never had more data - track records, quartile rankings, PME calculations - yet the signal on who will perform has arguably never been weaker. The standard playbook was built for normally distributed returns. Venture capital is not that world.
A typical VC portfolio follows a power law: fewer than 10% of investments generate 90% of returns. One outlier can make a career. Two consecutive funds without one can end it. The attributes that define exceptional performance are largely invisible to standard due diligence. But they are not unknowable.
In this article, we will explore four areas that most LPs tend to undervalue.
1. The Fund Manager: their background and how it aligns with their thesis
2. Team Dynamics: how partners make decisions and work together
3. The Operational Side: both inside the fund and between the fund and its portfolio companies
4. Exit Strategy: how the GP plans to return capital to LPs
Each of these areas is more challenging to assess than quartile rankings, yet they are more predictive of future performance.
Section 1 - The Fund Manager
The starting point is always the individual: who is this person, where have they come from, and does that genuinely connect to what they are proposing to do? Every VC firm has an investment thesis. Very few have a coherent story about why these specific individuals are the right people to execute it. This is where due diligence most often goes thin.
A thesis is only as credible as the alignment between the partners' lived experience and the markets they propose to invest in. Sequoia's early dominance in enterprise software was anchored by Don Valentine's background at Fairchild Semiconductor - he understood the buyer's psychology because he had lived it. Atomico's European deep-tech franchise is built on Niklas Zennström's credibility as the founder who scaled Skype from zero to $2.6 billion. The founding story is not marketing; it is the operational foundation of deal flow access and founder trust.
The track record is part of this assessment, but it is not the whole of it and LPs often misread it. A comprehensive 2025 study using Burgiss data covering over 2,000 U.S. VC funds found that previous top-quartile performance delivered an average PME of just 1.37 at fundraising time, versus 1.05 for prior bottom-quartile funds. The difference largely collapses when you use only data available at commitment. More strikingly, first-time VC funds raised after 2000 delivered an average PME of 1.45 - exceeding the average of funds with prior top-quartile performance. The judgment that produces great venture returns is more portable than LPs have assumed. What matters is whether the manager's background, networks, and instincts genuinely support the thesis they are advancing.
The question to ask directly: “Walk me through the last three deals you sourced. How did your specific background help you find, win, or add value to each one?” The answer reveals whether the thesis is built on genuine advantage or aspirational positioning.
Section 2 - Team Dynamics
A firm is not an individual. It is a partnership, and how that partnership functions - how decisions are made, how dissent is handled, how responsibilities are divided - determines whether good individual judgment translates into great fund performance over time.
Decision structure reveals, more clearly than any pitch deck, how a partnership thinks about risk and conviction. A Harvard Business School study - “Catching Outliers” - found that the probability of catching a unicorn is 3.2 times higher under the champion rule, where any partner can drive an investment forward with conviction, than under majority voting. The intuition is rooted in the power law: the best early-stage investments are outstanding on a few dimensions but flawed on many others. Consensus systematically filters out the investments with the greatest outlier potential.
Andreessen Horowitz embodies the champion model: any GP can make a go decision. Marc Andreessen noted that Google, Facebook, and Oracle “all had massive flaws as early-stage ventures, but they also had overpowering strengths. With a scoring approach, you get the mush in the middle.” Index Ventures uses scored voting with a forced gap - votes from 1–4 or 7–10, no middle ground - to compel conviction. Sequoia combines unanimous voting with individual veto power and blind voting to prevent senior partners from anchoring junior assessments.
But structure is only half the story. How the team works together day-to-day, the division of responsibilities, the rhythm of interaction, and the quality of debate under pressure determine whether the formal rules produce good decisions or good theatre. At the best firms, there is genuine clarity about who owns what: which partner covers which sectors, who takes board seats, who leads follow-ons. There is also an honest reckoning with how seniority dynamics operate, whether junior partners have a real voice, and whether founding partners can be challenged.
If you can arrange it, ask to observe a partner meeting. Watch how dissent is handled. The quality of debate is the best predictor of decision quality over time. A partnership where everyone agrees is not a strong team - it is a suppressed one.
Section 3 - The Operational Side
Operations is two things simultaneously: how the fund runs itself, and how it operates as a partner to the companies in its portfolio. Both matter, and they are assessed differently.
Inside the fund
Most LP due diligence focuses on the front of the house - the partners, the track record, the deal flow. The back office is treated as a hygiene factor. This is a mistake. Operational discipline creates the transparency that enables good investment decisions to compound over multiple fund cycles.
Well-run funds operate on a disciplined quarterly rhythm: collect portfolio updates, recalculate NAV, prepare investor reports, obtain sign-off. The ILPA reporting template, effective January 2025, now requires quarterly fee and expense reporting, carried interest calculations, and portfolio company-level data within 45 days of quarter-end. Funds that consistently struggle to meet these standards signal either resource constraints or discomfort with scrutiny — neither is reassuring.
Extend the assessment to governance: the LPAC structure, conflict policies, co-investment allocation, key person provisions, succession arrangements. A fund with vague governance and no succession plan is betting that nothing will go wrong over a 10- to 15-year fund life. Firms that build institutions, not just manage a single fund, think carefully about these structures from the outset.
Between the fund and its startups
The other dimension is how the GP actually operates as a partner once capital is deployed. Firms with significant platform capability - operational support, talent networks, commercial introductions - have produced measurable outperformance: studies have shown up to 1,100 basis point improvements in Net IRR compared to firms with no platform over the past decade.
Seedcamp illustrates one model: They describe it as active talent recycling - a community of more than 1,200 operators that drives growth through events, networks, and referrals, helping new investments land early customers. It is not a traditional platform team; it is a distributed network of founders and operators paying it forward. Quality varies enormously across firms: some staff platform with event planners, others recruit seasoned former CROs and CTOs who have actually built the functions they advise on.
The intellectual honesty dimension belongs here too. How does the GP behave when a portfolio company struggles? The most consistent differentiator across high-performing managers is willingness to recognise when a thesis is wrong and treat it as learning rather than concealment. Ask for a post-mortem on a failed investment. The quality of the answer tells you how the GP will manage problems you have not seen yet.
The most underutilised tool here is the honest founder reference call - not the polished testimonial from the GP's best portfolio company, but the candid account from a founder whose company struggled. Did the VC make introductions that changed the trajectory? How did they behave when milestones were missed? Would the founder take their money again?
Section 4 - Exit Strategy
Venture capital is a 10-to-15-year commitment, but the exit strategy is rarely interrogated with the same rigour as the entry thesis. This is one of the most significant gaps in standard LP due diligence. Without exits, everything else is irrelevant.
The landscape has shifted structurally. The IPO window has narrowed. M&A acquirers have become more disciplined. The median time to exit has extended from 5–6 years to 7–10 years. Against this backdrop, the secondary market has emerged as a genuine third exit, with a transaction volume of approximately $135 billion in 2025. An estimated 71% of all venture exits in 2024 occurred through secondaries - a figure that demands a response from every GP on how they approach liquidity planning.
DPI is the metric that matters. For eight consecutive quarters through 2025, distributions to LPs hovered in single digits as a percentage of NAV. A firm with strong paper returns but minimal DPI is not generating the liquidity that pays pension benefits or endowment distributions. TVPI is a valuation opinion. DPI is a fact.
An exit strategy also tests the completeness of the investment thesis. A GP who cannot articulate how they intend to exit a position before they make the investment has not fully thought through the economics. Entry valuation, ownership target, hold period, and reserve allocation all flow from the exit plan. If the exit thesis is vague, the investment thesis is unfinished.
The questions to ask: “What percentage of your prior funds' NAV has been distributed as cash, and over what timeline?” and “When you make an investment, what is your expected pathway to liquidity?” Firms fluent in secondary options, GP-led processes, LP-led secondaries, and structured tender offers demonstrate sophistication. Firms that dismiss secondaries as inferior to real exits may be prioritising narrative over LP liquidity.
A Sharper Lens
The four areas outlined here, manager background and thesis alignment, team dynamics, operational infrastructure, and exit discipline, are not the easiest things to assess. They require judgement, direct conversation, and the willingness to ask questions that make GPs uncomfortable. They also require accepting that the answer may not be in the data room.
The LP who develops a sharper diagnostic, who can assess not just what a VC has done but how they think, how they learn, how they operate when no one is watching, and how they plan to return capital, will have a genuine and rare advantage. In a power-law asset class where one decision can define a fund, that lens is not optional. It is everything.