Sand Hill Road is packed with big name VC’s managing billions. But if you really want to make money, look elsewhere.

That’s the conclusion of a new report from Pitchbook. Pitchbook analyzed hundreds of firms’ performance. Smaller firms outside Silicon Valley dominated the list:

Here’s Pitchbook’s top 10:

1) Union Square Ventures Opportunity Fund – NYC
2) Emergence Capital Partners Fund – SF
3) Union Square Ventures – NYC
4) IA Venture Strategies Fund – NYC
5) Third Rock Ventures Fund – Boston
6) TLV Partners – Tel Aviv
7) Newion – Amsterdam
8) YLV – Tel Aviv
9) True Ventures Select – Palo Alto
10) Index Ventures – London and SF

Does Location Change the Way We Think?

When you imagine a venture firm, what do you picture?

Probably not yellow taxis and bagels. And definitely not Amsterdam.

But the data tells us that’s where the money is!

Another standout here is Tel Aviv. The city has fewer than half a million people, but grabs two spots on the global top 10.

You Can’t Do Average Things and Expect to be Above Average

These data are surprising. But on the other hand, what else should we expect?

If you want above-average returns, you can’t do what all the average investors do. And in venture capital, the average investor finds a big name in Menlo Park and hands them a bag of cash.

People outside the Silicon Valley bubble see things differently. Maybe we’re less likely to get swept up in the latest craze, whether it’s crypto or foundational AI models.

Those crazes cost investors a fortune. How many LP’s are looking at big, fat 0’s on those 2021 crypto funds?

Small Is Beautiful

The top firms are in weird places. But they’re also special in another way.

Almost all of them are small.

Some big VC’s have tens of billions under management. Most of the top performers, on the other hand, manage a couple billion at most. Some have far less.

It’s a lot easier to get a big return on a small pot of money.

If you want to 3x a $1 billion fund, that requires $2 billion in exits. If you own 10% of your winners at IPO, you need a $20 billion outcome — in every single fund.

Those companies are rare. But if you only need a $100 million outcome, the game gets a lot easier.

Lessons for Investors

Whether you’re a VC, LP, or an angel like me, this list can teach you a lot.

If you want above-average returns, you have to do things differently. You can’t invest in the hot Silicon Valley company with no revenue at a sky-high valuation.

That’s what the average Joe is doing. We need to play a different game.

Here’s my game: find great startups with strong revenue growth in big markets. I don’t care if they’re in San Francisco or Frisco, Texas.

What do you think leads to the best returns in venture? Leave a comment and let us know!

Have a great weekend, everyone!

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