Despite mountains of theory and evidence supporting idiosyncratic risk as the source of outperformance, it’s just not where the incentives lie for venture capital.

But the strategy required reimagining traditional venture capital portfolio construction. Abstract’s model focused on “relative ownership” rather than absolute ownership: If he could get 5% ownership in deals where Andreessen Horowitz got 15%, he might have one-third their ownership, but out of a fund that was one-fifteenth the size, his LPs got 5x... See more

First, most emerging firms raise small funds. Smaller funds generally outperform, as they can participate meaningfully in early rounds and a single outlier has the potential to generate strong fund-level performance, even if the fund is only able to garner modest ownership.