VCs Are Diversified, Yes. But That Also Means They Need a Constant Stream of Hits. Like Netflix. Every Single Year.

Founders often say VCs are “lucky” because they’re diversified. They get multiple at-bats. They can spread their bets across dozens of companies and only need a few to work out.

And yes — that’s true.

But the converse is also true. And it’s the part most founders never really think about.

VCs Don’t Just Need Winners. They Need a Machine That Produces Winners.

Let’s talk about what VC fund math actually looks like, because this is where the “diversification is easy mode” narrative falls apart.

A billion-dollar exit? That sounds incredible. Life-changing for the founders, obviously. But for most VC funds? A $1B exit is rarely enough to even return 1x of the fund, let alone get it to the 3x-4x that LPs expect.

Do the math. Say you own 12% of a company at a $1B exit. That’s $120M back. If you’re running a $300M fund, that’s not even halfway to returning capital — forget about returning 3x.

A $10B+ exit? Those are generational. They happen maybe a handful of times a year across the entire industry. And even then, for a large fund, a single $10B exit often isn’t enough to get into carry. Think about that for a second. A $10 billion outcome and the partners still haven’t made money on the fund.

This is the math that nobody outside of VC really understands.

2025 Made This Problem Painfully Visible

If you want to understand how hard the “hits treadmill” really is, just look at the data.

Carta’s Q3 2025 report analyzed 2,835 VC funds representing $118 billion in commitments. The findings were sobering. The median 2017-vintage fund — now 8 years old — sits at just 1.76x TVPI. That’s well short of the 3x that LPs consider excellent. Only the top 10% of 2017 funds have crossed that 3x threshold.

And it gets worse for newer vintages. Among funds raised from 2019 onward, hitting even a 2x TVPI is rare, let alone 3x.

But here’s the number that really tells the story: the majority of funds raised since 2018 have returned exactly $0 in cash to their LPs. Not low returns. Zero distributions. As of Q3 2025, only 42% of 2020-vintage funds had generated any DPI at all. For 2021 funds? Just 25%. The DPI crisis has gotten so acute that 60% of LPs now say they prioritize actual cash returned over paper gains when evaluating fund managers.

Meanwhile, since 2022, VC managers have called 1.6x more capital from LPs than they’ve distributed back. During the prior decade, VCs actually distributed 1.3x more than they called. The flow has completely reversed.

This is the hits problem made real. Without exits — without a constant stream of them — the entire VC flywheel seizes up. LPs can’t reinvest. Funds can’t raise. The machine stops.

The Treadmill Scales With Fund Size

Here’s where it gets interesting — and where the “diversification” narrative really flips:

**For a tiny fund ($30M-$50M),**one big hit per fund might be enough. If you deploy over 3 years, that’s one major outcome every few years. The math works. This is actually why a lot of smaller fund managers have the best quality of life in venture — and the data backs it up. Carta’s research shows that smaller funds ($1M-$10M) have been outperforming $100M+ funds across most recent vintages.For a smaller fund ($100M-$250M), you probably need one significant hit per year. The pressure is real but manageable.For a bigger fund ($500M+)? Every single year, you need billions and billions in exits. Repeatably. Again and again and again. A $1 billion fund that invests $50M into companies and maintains 15% ownership post-dilution needs roughly $7 billion in exit outcomes just to return the fund — before anyone talks about generating 3x.

And the mega-funds just keep getting bigger. Lightspeed closed over $9 billion across six funds in December 2025 — its largest raise ever. Thrive Capital just raised $10 billion for Thrive X, nearly double its last fund. Battery Ventures pulled in $3.25 billion. Founders Fund raised $4.6 billion for a growth fund. The ten largest venture funds collected 43% of all fundraising dollars in 2025. Every one of those funds needs a staggering amount of exit value to deliver for LPs. Every single vintage year.

It’s the Movie Studio Problem, Exactly

This is why I think the movie studio analogy is actually perfect.

Sure, Disney or Universal can absorb a flop. That’s the diversification benefit. One bad film doesn’t kill them.

But they also need two or three massive blockbusters every single year just to keep the lights on. The machine demands constant feeding. The diversification that protects them on the downside creates an insatiable demand on the upside.

VCs work exactly the same way. The more diversified you are, the more hits you need. It’s not a paradox — it’s just math.

What This Really Means for Founders

This explains a lot of VC behavior that founders find frustrating.

Why your VC pushed back on that $400M acquisition offer. It might have been a life-changing exit for you. But for their fund, it barely registered. They needed you to be a $2B+ outcome. That’s not greed — it’s fund math.

Why some VCs seem desperate to find the next deal even after a big win. Because one big win doesn’t solve the problem. The treadmill keeps going. They celebrated for about 48 hours, and then they were back to needing the next hit.

Why the best VCs are so obsessively focused on picking and winning the very best deals. It’s not optional. For a large fund, you can’t just be “pretty good” at picking. You need to be relentlessly, repeatably great — or the math simply doesn’t work. And 2025’s data proved this: capital is concentrating massively into the top firms because LPs are finally saying “if you can’t return my money, I’m going to someone who can.”

Why AI is consuming everything. Half of all global venture funding in 2025 went to AI — $211 billion of $425 billion total. That’s not just excitement. That’s desperation for the kind of category-defining companies that can generate the multi-billion-dollar exits the industry needs to survive. Total VC exit value recovered to $549 billion in 2025, up from $337 billion the prior year, with AI companies accounting for over a third of that value. Without AI exits, many funds would still be staring at zero.

Diversification in VC Also Means You Have to Win A Lot More Often

Yes, VCs are diversified. Yes, they get multiple at-bats. That part is true.

But diversification in VC doesn’t mean relaxation. It means a constant, compounding, never-ending demand for more and more hits.

For bigger funds especially, you don’t just need a unicorn. You need a steady, repeatable pipeline of massive outcomes — year after year, fund after fund, vintage after vintage.

And as 2025 made painfully clear — when the majority of funds raised in the past 6+ years still haven’t returned a single dollar to their investors — that pipeline is far harder to build than it looks from the outside.

That’s not so easy. And the benefits of “diversification” come packaged with a burden that scales with every dollar under management.

Like clockwork, really.