Fund of Funds
Investing in VC Funds
Definition
A fund of funds is a venture capital vehicle that invests LPs' capital in multiple other VC funds instead of directly investing in startups. They provide diversification across managers, stages, and strategies.
In Simple Terms
Instead of picking individual startups, a fund of funds picks the best VC funds to invest in. Like buying an index fund of funds—you get exposure to Sequoia, Andreessen, and Bessemer all through one investment.
Why It Matters
Funds of funds offer diversification (spread risk across many VCs and startups), access (invest in closed-to-the-public top-tier funds), and expertise (professional selection of managers). Common for pensions, endowments, and family offices.
Example
You invest $10M in a fund of funds. They allocate $3M to Sequoia seed, $2M to a16z growth, and $5M across 10 other funds. You get exposure to hundreds of startups through top-tier managers.