Stage and fund size
Where a fund invests and how big it is shape its returns as much as the companies it picks. This guide covers entry price, ownership and fund size, and what the Australian data shows.
TL;DR
- Earlier means cheaper. The same exit is worth far more to an investor who bought in at a $10 million valuation than at $150 million, though more early companies fail.
- Companies stay private longer. US companies have been a median 11 years old when they list since 2001, against 8 in the 1980s, so more of the growth happens before the public can buy in.1
- Small funds have produced bigger top results. In Carta's 2018 vintage, top-decile US$1-10 million funds returned 4.03 times net against 1.67 times for US$100 million-plus funds.2
- Australia is cheap at the seed stage. Median seed valuations run about 50% below the US, and only 18 local funds did five or more seed deals in the past year.3
- Small funds concentrate risk. The Carta figures are the best tenth of each group; a small fund usually holds fewer companies and relies on a smaller team.
Why does the stage a fund invests at change the return?
Mostly because of the entry price. A seed investor pays a fraction of what a later investor pays for the same business. Take a company eventually sold for $500 million:
| Round | Company valuation when they invest | Multiple at a $500m sale, before dilution |
|---|---|---|
| Seed | $10m | 50× |
| Series A | $40m | 12.5× |
| Series B | $150m | 3.3× |
Illustrative. Each later round issues new shares and shrinks earlier investors' percentage (dilution), so the seed investor's real multiple is lower. If later rounds halved the seed stake, the seed result would still be about 25×.
In exchange, far more seed companies fail than Series B companies, so a seed portfolio relies on a few winners to cover a long list of losses (How venture returns work has the data). Later-stage funds fail less often but pay more per share, so even a strong exit produces a smaller multiple.
How do ownership and follow-on investment affect returns?
A fund's result from a winner depends on how much it still owns at the sale. A 10% stake in a $500 million sale returns $50 million; a 2% stake returns $10 million.
Many seed funds hold part of their capital in reserve for follow-on investment in their best companies' later rounds, to limit dilution. The right to do that (a pro-rata right) is negotiated at the first investment.
Follow-ons are made with better information but at higher prices, so deciding where to follow on matters almost as much as the first pick. Worth asking any manager how much they reserve and how they allocate it. How to vet a venture fund has more questions along these lines.
Why are companies staying private longer?
They can raise large amounts privately, so they need the stock market later or not at all. In Jay Ritter's US data, the median company was 8 years old at listing in the 1980s and 5 in the 1999 to 2000 boom. Across 2001 to 2025 it was 11, and in 2024 it was 14.1
Airwallex, the Australian-founded payments company, raised US$300 million at a US$6.2 billion valuation in May 2025, then US$330 million at about US$8 billion in December 2025, without listing.4,5
So for a client whose growth exposure is in listed shares, much of a company's rise has happened before it floats. Venture in a portfolio looks at how that fits with a client's other assets.
Do smaller venture funds return more?
The best small funds have. In Carta's data for the 2018 vintage, top-decile funds of US$1 million to US$10 million returned 4.03 times net, against 1.67 times for top-decile funds of US$100 million or more.2
Smaller funds have produced the bigger multiples
Most of the gap is arithmetic. To return three times its size while owning about 10% of its winners at exit, a $50 million fund needs those companies to sell for about $1.5 billion in total. A $1 billion fund needs about $30 billion. Large funds also need large cheques, which pushes them towards later rounds at higher prices.
The risks of a small fund
The Carta figures compare only the top tenth of each size band and say nothing about the typical small fund. Small funds usually hold fewer companies, rely on one or two decision-makers, and are often run by newer managers with a shorter record. If the team changes, the fund can change with it. How much to allocate covers spreading a client's venture money across funds and vintage years.
What does the Australian venture market look like?
On Side Stage Ventures and Dealroom's 2026 report, Australian venture has delivered a five-year pooled return of 24.4%, almost double US peers. The report's chart measures this as a pooled IRR across an Australian venture index, net of fees.3,6 Australia also produces more decacorns (companies worth US$10 billion or more) per dollar invested than any other market.3
Strong results for the capital invested
Median seed valuations run about half the US level, so the same cheque buys a larger share.3 And only 18 Australian funds completed five or more seed deals in the past year, against 598 in the US and 516 in Europe.3
Australia has far fewer active seed funds
A small market has costs: fewer large exits, fewer local buyers and fewer later-stage investors, so Australian companies often need overseas money to keep growing. The five-year return covers one stretch of the market and comes from a single report. A registered ESVCLP adds the tax treatment in The ESVCLP guide; the result still depends on the manager.
Frequently asked questions
They can, because they buy in at much lower prices, so a successful exit produces a larger multiple. More seed companies fail, so results depend heavily on portfolio size and the manager.
When a fund puts more money into a company it already backs in a later round, usually from reserves, to limit dilution in its best companies. It pays a higher price than the first cheque.
They can raise large amounts privately, so they need the stock market later. In Jay Ritter's US data the median company has been 11 years old at listing since 2001, against 8 in the 1980s.
The best small funds have. In Carta's 2018 vintage, top-decile US$1-10 million funds were at 4.03 times net against 1.67 times for top-decile funds over US$100 million. That compares the top tenth of each group, not the typical fund.
A small fund usually holds fewer companies, depends on a small team and may have a shorter track record, so due diligence on the team matters even more.
Side Stage Ventures and Dealroom's 2026 report puts Australia's five-year pooled return at 24.4%, almost double US peers, with median seed valuations about half US levels. The market is much smaller, with fewer large exits and later-stage investors.
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Talk to us about Fund III
Tall Order is a Melbourne seed fund. Fund III is a registered ESVCLP for wholesale investors. Justine Lum, our Head of IR, works with advisers and their clients.
Sources
- Jay R. Ritter, University of Florida, Median age of companies at IPO. ↩
- Carta, VC Fund Performance Q4 2024: net TVPI by fund size and vintage. ↩
- Side Stage Ventures and Dealroom, Australia Venture and Startup Report 2026: pooled returns, unicorns and decacorns per dollar, seed valuations, seed fund activity. ↩
- Crowdfund Insider, Fintech firm Airwallex raises US$300M in Series F at a US$6.2B valuation (May 2025). ↩
- Crowdfund Insider, Airwallex announces US$330M Series G at a US$8B valuation (December 2025). ↩
- Forbes Australia, Coverage of the Side Stage and Dealroom 2026 report, reproducing its chart 'Australia VC index performance compared with global peers (pooled IRR, net of fees)' and the 24.4% five-year pooled return. ↩