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LPs and GPs, it’s often said that fund size determines strategy and that’s very true for portfolio construction. But, another element on fund size is what the total value of exits need to be. A simple rule is what I’ll call the Rule of 30. This assumes that a fund owns 10% of a portfolio company on exit. Multiply fund size by 30 and that’s the total exit value the fund needs to get a 3x gross multiple. Example: a $500M fund means it needs $15B of exit value. 10% ownership at exit is $1.5B which is the 3x gross multiple. $15B of exit value in 1 fund means 15 unicorn exits or a decacorn exit and 5 unicorn exits. Assuming a portfolio of 35 companies, that’s quite a hit rate 🤔 Btw a 3x gross multiple for a $500M fund is about a 2.6x net multiple ($1.5B less $200M of carry / $500M). Aside from deciding if that $500M fund can generate $15B of exit value, an LP will consider that 2.6x for venture vs what they can get in small buyout with a shorter timeline for distributions and perhaps lower risk.