Fund of Funds
An investment vehicle that invests in other venture funds rather than directly in startups.
A fund of funds raises capital from its own LPs and deploys it as an LP into a portfolio of underlying venture funds, rather than investing directly in companies. It gives investors — often institutions or individuals who want venture exposure without the expertise or access to evaluate individual GPs directly — diversified access across many funds and strategies through a single commitment.
The tradeoff is an added layer of fees: LPs in a fund of funds pay fees to the fund-of-funds manager on top of the fees and carry already charged by each underlying fund, which compounds and meaningfully reduces net returns compared to investing directly in top-tier funds.
Fund of funds structures make the most sense for LPs who genuinely lack access to top-tier venture funds directly — for those who can get into strong funds on their own, the extra layer of fees is usually not worth the diversification benefit.
Why would an LP use a fund of funds instead of investing directly in venture funds?
Mainly for diversified access and manager selection expertise when the LP lacks the relationships or resources to get into top-performing funds directly — the cost is an added layer of fees on top of the underlying funds' own fees.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.