20VC with Harry Stebbings• Aug 4, 2025• 1:30:35Interview

Miles Dieffenbach: Inside Carnegie Mellon’s $4BN Endowment & The Math Behind DPI, TVPI, Illiquidity

From 20VC with Harry Stebbings

Miles Dieffenbach•Managing Director, Carnegie Mellon University Endowment

Executive Summary

The venture capital asset class is fundamentally challenged, with the speaker arguing that most Limited Partners (LPs) are not adequately compensated for the risk, and that 90% should avoid the asset class altogether.
Large, multi-billion dollar venture funds face a mathematical problem in generating historical returns, as they require an unrealistic number of massive ($50B+) exits to achieve top-quartile performance.
A significant misalignment exists between GPs and LPs, particularly in large funds where management fees alone generate immense wealth for partners, suggesting fee structures should evolve to be more like public equity funds.
Despite a slow current market, a significant liquidity wave is anticipated around 2026, driven by M&A from cash-rich tech giants and a backlog of mature private companies needing to exit.

12 quotes

Concerns Raised

Inadequate risk-adjusted returns for the median venture capital investor.
Structural misalignment of incentives between GPs and LPs in large funds.
The mathematical difficulty for mega-funds to generate venture-like returns.
Poor valuation discipline and inflated marks held by some managers.

Opportunities Identified

Investing in top-decile, disciplined managers who resist excessive fund scaling.
A potential wave of M&A and IPOs creating significant liquidity around 2026.
The current fundraising downturn may enforce greater discipline and better terms for LPs.
Secondary market transactions, like CalPERS buying a portion of Yale's portfolio, offer alternative liquidity paths.

Key Themes

GP & LP Misalignment

The traditional 2/20 fee structure and the trend of ever-larger fund sizes have created a misalignment of interests. For mega-funds, the management fees provide enormous, risk-free wealth to GPs, potentially reducing the incentive to drive for the high-risk, high-return outcomes that LPs require.

This challenges the sustainability of the current VC model and highlights the need for LPs to demand more aligned fee structures, especially for late-stage or growth funds that resemble public market investing.

The Mathematical Challenge of Mega-Funds

The analysis demonstrates that as fund sizes swell into the multi-billions, the math required to 'return the fund' becomes daunting. A $7B fund needs multiple $50B+ IPOs to generate a meaningful return, an outcome that is historically rare, making top-tier performance statistically improbable.

This provides a critical framework for LPs to evaluate large managers, forcing them to question whether a firm's strategy and access can realistically overcome the difficult mathematics of scale.

The Reality of Venture Capital Returns

Contrary to popular belief, venture capital as an asset class does not guarantee superior returns. Data shows that only top-decile managers consistently outperform public market equivalents, while median returns (around 8% IRR) are underwhelming given the illiquidity, long time horizons, and high risk involved.

This serves as a crucial reality check, emphasizing that manager selection is paramount and that broad, uncritical allocation to venture capital is a flawed strategy for most investors.

Manager Discipline as a Key Differentiator

The discussion highlights firms like Index Ventures and Union Square Ventures as exemplars of discipline. This includes resisting the temptation to excessively scale fund sizes, maintaining a performance-driven culture, and having a clear, repeatable protocol for selling positions to realize gains.

This underscores that for LPs, evaluating a GP's operational discipline, culture, and exit strategy is as important as analyzing their investment track record.

The Anticipated 2026 Liquidity Window

A confluence of factors is expected to create a significant liquidity event around 2026. These include a backlog of mature, venture-backed companies, a potential reopening of the IPO market, and the massive cash reserves of tech giants like Google and Microsoft, which could fuel a wave of strategic M&A.

This provides a forward-looking timeline for both GPs planning exits and LPs anticipating long-awaited distributions, suggesting a potential end to the current liquidity drought.

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Processed Mar 29, 2026 yt-dlp + mlx-whisper + Gemini