Recast Capital’s Zulkosky says venture investors are crowding into megafunds

Venture money is clustering around the biggest funds and the biggest startup rounds, and Sara Zulkosky of Recast Capital says that shift changes the risk investors are taking. For anyone tracking private tech markets, her argument is direct: backing the largest names may feel safer, but it can make venture exposure look more like a broad tech bet.

Zulkosky, co-founder and managing partner of Recast Capital, said limited partners have spent the past year reacting to macroeconomic shocks by pausing or steering money toward well-known venture firms. Limited partners, or LPs, are the institutions and investors that commit capital to funds rather than picking startups themselves.

Her view is that the startup market has not seen a sudden collapse in its underlying business case for innovation. Instead, she argues, many LPs have responded to uncertainty by choosing perceived safety over smaller and newer managers.

Capital is concentrating in the largest rounds

Crunchbase data cited by Zulkosky shows how concentrated venture dollars have become. Through April of this year, 80% of all U.S. venture investment went into rounds of at least $500 million, spread across only 29 companies, according to Crunchbase.

Zulkosky described that pattern as more than a split between large and small venture strategies. In her analysis, very large venture funds can start to resemble an expensive index of the technology sector because they need extremely large exits to produce strong returns across billions of dollars in assets.

That distinction matters because venture capital traditionally centers on early-stage, high-conviction company building. In Zulkosky’s framing, a giant fund faces a different math problem: it must find outcomes large enough to move the results of a much larger pool of capital.

She acknowledged that large institutions may have practical reasons to use major venture firms. Some LPs cannot write checks small enough for emerging managers, and Zulkosky said broad venture exposure can be a rational choice for those investors.

Her critique is aimed at LPs that could allocate to newer managers but choose not to. Zulkosky pointed to reporting from Venture Capital Journal that LPs have said their venture allocations underperformed benchmarks for two years in a row. She also cited the same reporting in saying more than half of LPs are not considering investments in emerging managers.

Emerging managers show stronger average IRR in cited study

Zulkosky also pointed to research from the Colibri Institute covering nearly 2,500 venture funds from 2000 to 2024. The study found emerging managers produced an average internal rate of return of 17.15%, compared with 9.94% for established managers.

Internal rate of return, or IRR, is a performance measure that estimates an investment’s annualized return over time, including the timing of cash going in and coming out.

At Recast Capital, which invests in and supports next-generation venture managers, Zulkosky said she sees emerging managers continuing to deploy capital despite a tougher funding market. She said those managers are still finding founders building through a cycle in which much of the capital is flowing to the largest companies.

Her broader point is that LPs may be swapping one kind of risk for another. Rather than taking company-specific venture risk, she argues, investors concentrated in the largest funds may face returns risk: whether a large venture vintage can beat a public-market benchmark such as the S&P 500.

This story draws on original reporting from Crunchbase News.