E365: Stanford GSB Professor on Venture Capital’s Manager Incentives

9 snips

May 8, 2026

Ilya Strebulaev, Stanford GSB professor and VC incentives expert, explains how incentive design—not raw fees—shapes manager behavior. He discusses how higher carry boosts risk-taking, why follow-on decisions often matter more than initial bets, and how diversification and correlation across managers change venture outcomes. He also warns about style drift and escalation of commitment.

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INSIGHT

Fee Structure Beats Fee Rate

Incentives matter more than headline fee numbers because fee base and timing change manager behavior.
Two and a half percent of committed versus invested capital and a tiered carry materially alter risk-taking and net returns.

INSIGHT

Carry Is An Option That Raises Risk

Carry is an option that pushes managers toward higher risk, and moving from 20% to 30% increases that skew.
Higher carry changes selection and risk profile, so identical managers may behave very differently after a carry bump.

ADVICE

Evaluate Future Net Returns Not Past Gross

Focus on expected future net performance, not past gross returns, when selecting managers.
Ask how past gross performance translates into future net outcomes after changed incentives like higher carry.

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What if the biggest mistake in venture investing isn’t picking the wrong fund—but misunderstanding incentives and behavior? In this episode, I sit down with Ilya Strebulaev, Professor of Finance and Private Equity at Stanford GSB, to discuss how incentives, biases, and portfolio construction shape outcomes in venture capital. Ilya explains why fee structures matter less than how they’re designed, how carry changes risk-taking behavior, and why persistence in venture is real but often misunderstood. We also explore diversification, correlation across managers, and the hidden decision-making biases that drive both LPs and GPs, from escalation of commitment to style drift.

Highlights:

Why incentives—not fees—drive investment behavior
How higher carry structurally increases risk-taking
The difference between gross returns and net returns
Why diversification works differently in venture
The concept of style drift and why it destroys persistence
How LPs underestimate correlation across managers
Why follow-on decisions matter more than initial investments
The bias that leads VCs to double down on bad investments

Guest Bio:

Ilya Strebulaev is a tenured chaired Professor of Finance and Private Equity at Stanford Graduate School of Business and a leading expert in venture capital, private equity, and innovation. He is the founder and faculty director of the Stanford GSB Venture Capital Initiative and has published extensively in top academic journals, with his work featured in major media outlets. Ilya teaches courses on venture capital and private equity at Stanford and has received the Distinguished Teacher Award, while also advising global investors and institutions on investment strategy and decision-making.

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Sponsor:

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Disclaimer:

This podcast is for informational purposes only and does not constitute investment, financial, legal, or tax advice. Nothing in this episode should be interpreted as an offer to buy or sell any securities or to participate in any investment strategy. All opinions expressed by the host and guests are their own and do not represent the views of Weisburd Capital. Participants may hold positions or have financial interests in the companies, funds, or investments discussed. Any references to specific investments are for illustrative purposes only. Investing involves risk, including the potential loss of capital. Past performance is not indicative of future results, and any forward-looking statements are subject to risks and uncertainties. Any third-party data or opinions have not been independently verified. Listeners should conduct their own research and consult their own advisors before making any investment decisions.

(0:00) Why “2 and 20 vs 2.5 and 30” Is the Wrong Question (2:43) How Higher Carry Quietly Changes Investor Behavior (4:15) The Hidden Risk Behind “Top Performing” Fund Managers (5:54) Why LPs Misunderstand Performance Persistence (8:16) The Dangerous Incentive Shift From 20% to 30% Carry (9:53) Why Great Investors Suddenly Change Strategy (Style Drift) (12:10) Venture Might Be the Only Asset Class With True Persistence (16:08) Why You Can’t Access the Best Venture Funds (Even If You Want To) (18:12) The Biggest Mistake LPs Make When Diversifying Venture (30:58) The One Bias That Destroys More VC Returns Than Bad Deals