INSIGHTS: Early-Stage VC Investing - A Guide to Unlocking Alpha

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The information and opinions expressed are those of BridgeWood Alternatives and Summit Peak Investments and are for informational and background purposes only, do not purport to be full or complete, and do not constitute investment advice. This discussion is for informational purposes and is not an advertisement or an offer to sell, or a solicitation of an offer to purchase, any interest in any investment fund or vehicle. Nothing contained herein should be relied upon as a recommendation about investing in securities. Investing in early-stage venture capital involves significant risks, and past results are not indicative of future performance. Additional information about Summit Peak Investments is available upon request. BridgeWood Alternatives serves as a placement agent for Summit Peak Investments and receives compensation in connection with that relationship.

[BridgeWood] As most of you know, we're big believers in early-stage alpha across all asset classes. And while it can be rewarding if done properly, diligencing and investing in early-stage opportunities does come with its challenges. That's particularly true with early-stage venture capital.

So, I'm pleased today to be joined by Apurva Mehta, the co-founder and managing partner of Summit Peak Investments, an early-stage VC fund of funds with over $1.3 billion [as of 3/31/2026] in assets. Apurva has got 25 years of investment experience and close to 15 years of experience investing in early-stage VC. Prior to co-founding Summit Peak, he was the Deputy CIO of Cook Children's Healthcare System, managing over $2 billion in assets, with early-stage VC being a core asset class in the portfolio. Since 2012, Apurva and his partner, Patrick O'Connor, have invested in over 30 early-stage VC managers and were Fund I and Fund II investors in some of the leading names in the VC space today. Given that Apurva is a modest guy and may not say it himself during the conversation today, I'll highlight now that every manager they've invested in since 2012 has continued to successfully raise subsequent funds with no zombie managers.

This success rate over a full market cycle is incredibly rare in early-stage VC and obviously a testament to their research process, their network, and their access. So, I'm excited he's here today to share some of his insights into navigating the early-stage VC landscape with us.

So to start off, you've been investing in early-stage VC managers for almost 15 years now. First, how did you get into it and why? And why did you gravitate towards early-stage VC versus later-stage?

[Summit Peak] Patrick and I started this journey around 2011, 2012. As any institutional allocator would do, we built out a portfolio, invested across liquid asset classes, and illiquid. When focusing on illiquid, we did the low-hanging fruit things, which were private equity, real estate, and private credit.

Venture has been one of the longest-standing asset classes for some of the biggest name endowments, whether the Ivy Leagues or otherwise, and has generated a lot of returns and a lot of alpha for those endowments. And so, 2012, maybe not too dissimilar from now, was an era where there was a lot of illiquidity in the market.

There was the illiquidity overhang from the 2002, 2003, and 2004 vintages. There was an uncertainty around the 2006, 2007, 2008 vintages, the GFC vintages of venture. And that was a good signal for us to say, hey, let's be contrarian and actually think about deploying capital to venture.

And when you kind of unpack the market, you have the big-name firms and the brand names that everybody knew then, and knows today, Sequoia, Founders Fund, Benchmark, Accel, Kleiner Perkins, the list kind of goes on. But our view was that those firms were going to continue to get bigger and bigger. They have.

We had this thesis then. We had no idea of how magnified that thesis was going to look 13 years later. And so that thesis then was these firms are going to continue to get bigger and bigger, which means they're going to be investing further downstream.

And by downstream, that means mid and later stages. And where they've made money historically was in the early stages. So when you look back to the 80s, 90s, and 2000s of venture, these brand names were deploying capital at the early stages, and that's where they made their money.

And that's where you get the power law in venture, which is 10% of your portfolio driving 90% of the results. So our thesis was early-stage venture is cycle-agnostic. You don't have to worry about where you are in the cycle because innovation is occurring irrespective of what's going on in the world.

I mean, literally, whether there's a war or not, whether there's a pandemic or not, innovation is happening year in and year out. And at the early stage, you can capture that alpha. And so why don't we identify the next generation of managers that are going to be accessing that deal flow because of their size, because of their access, because of their network, where these larger brand-name firms can no longer do.

And so that was the thesis then. It still continues to be the thesis now. We like this space because of the ability to be cycle-agnostic.

And then beyond that, the mass at the early stage really lends itself to make, for what is an illiquid asset class, whether you're in the early stage (and early stage is pre-seed, seed, series A investing), or mid and later stages, series B, series C, series D onwards. Even for mid and later stage, you're in a 10-year fund, plus one, plus one, and early stage is the same. And so at the early stage, you're really getting that illiquidity premium.

And so when you look back historically, the early stage has been the best performing space in venture. And so that's where we focus our effort. And it worked out well for our former firm, and subsequently, now at Summit Peak.

[BridgeWood] It makes a lot of sense. How has the landscape changed in early-stage over the past decade plus? And what are some of the key lessons learned in your early-stage VC investment journey?

[Summit Peak] So, it's gotten crowded. When we started this in 2012, there might have been 150 managers in this landscape, either new or spinning out of somewhere, 150 to 200, just to generalize. Not all of them were institutional. Some of them were semi-institutional.

We helped managers get to that institutional level. Now, in that segment, there must be over 2,000 to 3,000 managers. So, the space in the ZIRP era of investing, 2020, 2021, became a little bit commoditized in a zero-cost-of-capital environment.

It meant that the founders could raise as much money as they wanted. And everybody had access. And so it lent itself to every manager, whether it was their full-time job or a hobby, wanting to raise a fund.

It could be a founder. It could be an employee saying, I've got access. And so, the landscape's gotten crowded.

It was difficult to navigate over a decade ago. You have to look at a pitch deck, understand how a manager finds, picks, and wins deals. And it was not easy then.

You have to understand their network. What's their value add? Sourcing, picking, winning. Those are the three important things. And over the last 15 years, it's just gotten more difficult. Everybody has their "Here's our network slide". Everybody has that slide, and it has 15 brand-name logos on it. And everyone has the value slide. Back then, there were less managers.

And so, you could really dig into that and figure it out. If you know the space, you can figure it out now. But now, with 3,000 managers, it's really hard unless you're kind of boots on the ground in the space.

[BridgeWood] Yeah, you have a slide on your deck that shows the dispersion between the median and the top performing managers in a number of asset classes, with early-stage VC having the highest dispersion. The point of the slide is that manager selection in early-stage VC matters more than any other asset class. And the top quartile managers in early-stage VC outperform their peers by a wider margin than any other asset class.

So if you do it the right way with the right people, there are huge opportunities. But as you just mentioned, it has challenges if not done properly. It is an increasingly crowded space, as you had mentioned.

Everyone's deck does look similar as you mentioned, with a ton of logos and things like that on them. So, what are the key things you focus on or the most important things to focus on, to find those top managers? Are there specific traits or particular profiles you look for? Asked differently, it's probably easy to choose the good from the bad, but what separates the best from the good, since there's so much dispersion and opportunity between the two?

[Summit Peak] I think that dispersion, if you look, the data is not fully out yet, but if you look at it on a rolling basis. In that ZIRP era of investing, there will be some compression, and that dispersion gets smaller. And then as we get back into this alpha era, which we're in now, the dispersion numbers are going to get wider the difference between median and top quartile.

And when you think about what separates the median from the top quartile to top decile, first and foremost, it is network and access. We're assessing what network the manager is tapping into? How relevant is that network? Why do they get to play in this space? What makes them special? Everyone could say they have access to the Elon mafia, if we're going with Elon Musk, but what makes you special to get access to that mafia of either companies in his world or founders that are leaving any of his companies or employees that are leaving his companies? So we really focus on networks and ecosystems first. And then second from that, we're thinking about "why do you win the deal"? Those are the two main things.

There's a softer side to it as well. Some of our GPs say this, the who is greater than the what. What's driving you to build what you're building? And so, we really think about the hustle and the grit behind a new GP, any GP actually.

Do they still have it in them? Are they, when they're starting out, what's driving them to build what they're building? And what's motivating them to continue to hustle, whether it's for deal flow, for their founders. And that is the softer side of the venture. The only way to figure that out is doing lots and lots of reference checking, lots and lots of reference calls.

You have to speak to the founders to understand why a founder wants to take ABC's capital over XYZ's capital. And so that's what differentiates the median from the top quartile and above.

[BridgeWood] And what questions should an investor ask to determine how deep and proprietary a manager's advisory network really is?

[Summit Peak] Let's go with the obvious things. If you think about the largest outcomes that have occurred over the last decade, the PayPal mafia is relevant, but it's less relevant today than the Palantir mafia. So you have to think with some recency bias about what the new largest outcomes that are occurring? The Facebook mafia was real, and it still is real. And so when you look with recency to some of these newer things, you really have to assess, if you're an investor looking at a firm, the quality of that network, why are you seeing those deals first? Because otherwise, you're going to get overrun on valuations or on terms. You're not going to get as much ownership or the check size you want.

So why does that GP have special access? And so, if I'm a brand-new LP to the space, it's identifying the networks and ecosystems that matter. That's first and foremost, the VC community in Timbuktu is less relevant than the SpaceX mafia, the Anduril mafia or the Palantir mafia of founders that are coming out of these, or employees that are coming out of these companies to start new companies. And as an LP looking at this space, really digging into the call.

You have to figure out what makes these GPs special to be that first call. And so, a lot of it comes from a GP building a relationship with founders before they even think about starting a new company. They are talking to these people while they're still employees at their prior firm.

And the moment they're ready to go out on their own, you've spent years building this relationship and dialogue, and now you're the first call. So, there's a lot of soft points, relative to any other asset class, and there's a wide dispersion there. There's just a lot of soft tools that you have to look at versus quantitative.

So it's a lot of qualitative, not quantitative. And it just comes down to the people.

[BridgeWood] You touched on it a bit already, but the importance of pedigree, do most of the managers that achieve success come out of the big blue-chip firms in your mind? And is that important to you in the qualitative part of diligence?

[Summit Peak] You know, every LP is different in terms of how they think about this. There are firms that we have backed or people that we have backed that have come out of blue-chip firms. I would say we have a bias against it, not because we don't believe in Sequoia and what they've done. Sequoia is an amazing firm.

But you don't want to question, are you getting your deal flow because of the logo on your North Face and it being Sequoia Capital? And so there are things to underwrite. What's the network that you're getting into? Are you a sector specialist, and do you just have sector expertise in this space? What's the value that you're bringing to these founders? But if you're at Sequoia Capital or if you're at Andreessen, are you just getting that deal flow because you have, you know, Sequoia or Andreessen on your north face?

There's also more hustle. There is a clearer value add, clearer why they win their deals. Whereas when we back people that come out of firms, there are lots of successful ones out there. There's no question that they're not good. We just have a bias towards operating experience, investing experience, and marrying the two of those. And it does not have to come from a brand-name firm.

[BridgeWood] That makes sense. And probably also where the references become very important when you're not relying on a logo. What are some of the most overrated things in your mind that investors look at when diligencing early-stage VC managers, or maybe just common mistakes that you see investors make when they're due diligence and looking at early-stage VC?

[Summit Peak] Investors don't spend enough time understanding a manager, where they fit in the value chain and understanding portfolio construction. We had a meeting today with a GP. We backed that GP for their fund I, which was a $35 million over-subscribed fund I, within a month of fundraising.

They came out of a well-known firm, had an amazing track record, a well-known early-stage investment firm. So, not a brand name in the institutional mindset, but they wanted to build something of their own. And so, the $35 million over-subscribed fund I, and now they're building fund II.

And this was an open dialogue with us. This is how I'm thinking about building my fund. And what do you think about size? Is there a certain size that you tap out at, like Summit Peak? Is there a certain size where we say, we're not interested? And your strategy is defined by your size, or is your size defined by your strategy.

I think that is probably that most investors don't spend enough time talking through that with their GPs, which is if you want to be a $150 million fund II, go for it, but your strategy you've got to match that amount of capital. You can't execute the same strategy of, I'm going to write 75 checks and own 1% of each company at this size, and then do the exact, and plan to do the exact same. And it's one thing to be a collaborative investor, where you own 2% to 5% of a company.

And it's another thing to be the lead check writer for a round, and you're owning 5% to 15% of a company. They're different strategies. So, the size of your fund has to match what your strategy is.

There's a reason you have a sweet spot. It's not a muscle that investors have developed to spend time with managers to think through those questions.

[BridgeWood] Yeah, yeah. I guess moving more to macro It's been a fairly rough time for VC in recent years, according to PitchBook. According to PitchBook, though, many investors are sitting on the sidelines in VC. Why are you excited? And why should they be getting in now?

[Summit Peak] I'll juxtapose it in two ways. On one hand, vintage matters. And on the other hand, vintage doesn't matter. I said before, why we liked the early stage and why we focus on this space is that vintage shouldn't matter. There is innovation happening every single year.

And if you decide to tap out of the asset class this year, you're going to miss a wave of innovation for this vintage, which is 2025, 2026, 2027. You're going to miss an entire wave. Now this wave of innovation is going to encapsulate AI, defense, space, AI, defense, and space.

And so vintage doesn't matter because you should invest year in, year out from a vintage year perspective. If you're doing this directly, you should be investing every single year with different funds and have a programmatic approach to it. If you're doing it through a fund of funds, you already get that because a fund of funds is across vintages.

At the early stage, valuations are relatively range-bound, meaning you can be investing at the pre-seed and seed stages. Pre-seed can be as low as a $5m entry valuation or $10m entry valuation, to $20m to $30m valuation, again, depending on sector, depending on founder, repeat founder or not. It could be higher than that, but they're range-bound. And with cyclicality, a hot market versus not so hot market, those ranges will move up and down slightly. Whereas other stages in venture, series A, B and beyond, they move with the market. If the public market is willing to pay for a software company, X multiple of revenue for salesforce, the series A, B, C, D, et cetera, in the private market gets more expensive because the public market is here, and a private company is growing more than salesforce is growing. So, we're willing to pay more of a premium.

So, valuations or vintage shouldn't matter for early-stage venture because you're tapping into innovation every single year, year in, year out. But at the same time, going back to why it does matter.

I mean, we're at the early, early innings of what are going to be transformational companies. So, AI is one, I mentioned it. You know, it's everything.

I'm here in San Francisco. Demo day was this week for Y Combinator. Y Combinator is the largest incubator in the world.

One of the most successful, if not the most successful. Trillions of dollars of value created out of Y Combinator. Companies like Uber and Instacart and some of the most valuable businesses that have come out of Stripe that have come out of Y Combinator.

And we're just scratching the surface on what AI is doing for literally the world. So that is one opportunity today. There's a fun infographic out there that only 84% of the global population has not touched or used AI.

And so that means that when we think back to the late 90s, like when no one knew what Internet Explorer or Netscape was, and then everyone got on the internet. And then the mobile era and the payments era were just scratching the surface of what AI is going to do in everybody's lives. And then you have defense and space, same.

There is a massive opportunity, and it doesn't have to be cyclical to what's going on in the world. If you look at defense spending in any administration in the US. It's always moving upward, regardless of whether we're blue or red; it is a necessary evil, if you will, of the United States.

And so, when you think about innovation in that space, it's going to continue to be an area where tech companies are going to innovate. And so, you look at companies, whether it's SpaceX and space, Anduril and defense, you have age-old businesses that haven't innovated. And now you're going to have these new incumbents that are innovating in the space.

So, we're excited about the vintage because while software was big a decade ago, now you have different industries that are big and being disrupted today. And at the early stage, because of those range-bound valuations, we're really excited that we're getting to tap into that on a vintage basis. Yeah.

[BridgeWood] What's your favorite question or questions to ask prospective managers to sort of pull out some of the person in them?

[Summit Peak] I try to figure out, what's your why? Why are you doing this? You can see the hustle, you can see the grit, all those things, but not everybody can see that. If you've been doing this long enough, you can see it immediately.

So there's a pattern recognition that VCs have when they're looking at founders that I would say we see because we've been doing this so long that we have with GPs. And so, there's that, but it's really understanding your why. Why are you building what you're building? What do you want to build? And it's not an easy question. We're trying to spend time with managers to understand their why.