Deep Dive: Intro to Fund of Funds

Max Fleitmann
Founder of VC Stack
Deep Dive: Intro to Fund of Funds
Uma Patel
VC Content Creator

This deep dive was initially published in our VC Stack newsletter. Make sure to subscribe here to not miss any future episodes.

What is a Fund of Funds?

A fund of funds (FoF) is a pooled investment fund that invests in other funds. Unlike a venture capital fund where the portfolio is made up of other companies, a FoF’s portfolio consists of other funds and their underlying portfolio. The fund manager could invest in hedge funds, mutual funds, private equity, real estate, or venture capital funds.

A fund of funds can be “fettered” meaning it only invests in funds held by the same management company or “unfettered” where it invests in funds held by any management company. Typically a VC fund of funds is unfettered due to the amount of capital. When deciding on funds, the FoF manager performs due diligence on other fund managers as opposed to individual companies. This typically involves looking into their asset class allocation, sectors, industry trends, and portfolio weighting.

For investors, this is highly attractive since they’re able to use capital that would have otherwise been limited to a few investments across multiple portfolios. The major value add to a fund of funds is that the LPs of the FoF are accessing two layers of professional expertise for identifying a strategy to allocate these investments. Brent Weiss, CFP, co-founder of Facet Wealth, says

In a sense, when you invest in a fund of funds, you’re “hiring a ‘general contractor” to complete research on other managers, balance overall risk and make sure the entire ‘project’ runs smoothly,”

Benefits for Investors

  • Diversification. With a FoF, your investment is being spread across multiple portfolios as opposed to a singular set of investments. Meaning there’s a large opportunity to diversify your investments across sectors, managers, and asset classes.
  • Access to exclusive funds. Due to the pooled investment, individual investors are able to tap into funds that would typically require a much higher entry requirement either in net worth or check size.
  • Fewer Risks. Investing in a FoF allows for fewer risks because of the diverse investments as opposed to directly investing in an individual fund. Investors also have access to professional fund selection and expertise who will be able to develop a risk management strategy.

Drawbacks for Investors

  • Compounding fees. For investors, the FoF will charge an annual management fee and carry interest. As well as the underlying funds management fee and carry which means the compounding cost is typically much higher than in a standard venture capital fund.
  • Illiquidity. While some FoFs can be traded on exchanges, their investment horizon is often longer due to the nature of underlying VC funds. If it's a stage-mixed FoF, they might offer liquidity events at different times compared to seed or growth funds.
  • Smaller Returns. While diversification is a huge bonus, at times holding too many investments can result in fewer returns. Some investors have noted the possibility of buying into the same companies multiple times or paying higher fees for the same or lower performance.

Co-Investments in FoFs

A VC fund of funds may also invest directly into a portfolio company, along with other funds. In this way, they are avoiding the second layer of management fees. While also getting the assurance that another fund has already vetted the company.

Angel List, What is a Fund of Funds?

Fund of Funds

Aldea Ventures

Aldea Ventures is a pan-European venture capital platform based in Barcelona investing in the next generation of technology leaders. Aldea backs highly specialized emerging fund managers investing in early-stage companies and co-invest in growth-stage companies in their breakout paths.

Blue Future Partners

Blue Future Partners is a day-one partner to emerging fund managers (GPs) globally, currently with investments across 15 startup hubs spanning 3 continents, incl. the US, Europe, Israel, and Asia-Pacific. We strive to provide meaningful value-add to our portfolio.

Isomer Capital

Backing Europe's VC champions early and doubling down on their breakout companies. We run multiple fund strategies to provide our LPs with access at every level of the venture value chain & our portfolio VCs & founders with the support they need to win.


Pacenotes is a hybrid fund investing in top-tier funds and co-investing in the winners of their portfolios to generate strong risk-adjusted returns. Pacenotes’ focus is on top-tier tech funds in Europe, Israel, and the US.

Multiple Capital

Multiple Capital democratizes access to a consistent, highly diversified, early-stage venture capital portfolio. They invest in a range of both generalized local funds and specialized sector funds.

Molten Ventures

Molten Ventures invest in Europe's tech leaders at Series A and beyond to make it more possible. The fund invests in leaders in DeepTech, Consumer Tech, Healthtech, SaaS, and Enterprise software.

Sapphire Ventures

Sapphire Ventures has invested in more than 170 companies globally resulting in more than 30 Public Listings and 45 acquisitions. The firm’s investment strategies are focused on scaling companies and venture funds, elevating them to become category leaders.


Northgate Capital manages approximately $4.8 billion in venture capital and private equity. They distinguish themselves through a partnership approach to supporting the rapid growth of smart, daring, and resilient companies looking to build global platforms.

Additional Readings

Interested in learning more about the FoF structure? Check out these additional readings!