Why Most VC Portfolios Are Leaving Returns on the Table
- 3 days ago
- 10 min read
Greg Tennant is the scaling partner to some of the world’s most ambitious founders and senior leaders. He is the founder of andExecute, where he helps startups and scale-ups make scale work. Drawing on 20+ years across 20+ countries, his focus is leadership, execution, and building businesses that perform as they scale.
Most VC firms spend enormous energy finding the next great investment. Very few systematically improve the ones they already have. Here is what portfolio-wide operational uplift looks like, and why it may be the highest-leverage move available to investors right now.
The uncomfortable truth about the middle of the portfolio
Inevitably, some portfolio companies become what the industry calls zombies. Not dead, but not growing. Revenues are there. The product exists. But morale is low, execution is stalling, and the founder is quietly looking for the exit. Every investor has what one prominent VC describes as a line of despair, the point at which they lose faith and devote minimal effort to a company. Some sell their stake for as little as a dollar just to get it off the books.
Attention shifts to the winners. Advisory becomes less frequent. Follow-on capital dries up. The founder is left largely alone. The company drifts. Sometimes it recovers, more often it does not.
How much of that underperformance is actually inevitable, and how much is operational? How many of those companies could be doing significantly more with the capital they have if someone were looking at how they run rather than just what the numbers say after the fact?
The power law problem every GP knows
Investments that return the fund: 5–10% [1]
Returns from top 1–3 investments: 50–80% [2]
VC-backed companies that never return cash: 75% [3]
What is happening operationally inside the rest of the portfolio? And is anyone actually looking?
The companies that get backed hard and the ones that do not
Most companies that attract heavy investor attention share one thing, a differentiated product or business model. Whatever the sector, whatever the fund thesis, the pattern is the same. The company with the breakthrough technology, the differentiated product, the innovative business model, the defensible market position, or the category-defining brand gets the attention. That is where follow-on capital flows, where board time concentrates, and where strategic guidance sharpens.
This dynamic is most pronounced in mature venture markets like the US, where power law thinking is deeply embedded. European VC tends to hold relationships longer and support more broadly. In Asia Pacific, the shift is already underway, with investors moving away from multiple expansion toward operational improvement, and major fund managers actively building portfolio operations teams. In Latin America, the post-2021 correction has forced a structural change, with investors now rewarding operational discipline and capital efficiency over growth narratives, yet over 1,700 companies have raised seed and early-stage funding since 2019 without securing the next round. The operational gap in the middle of the portfolio is not a US problem, it is a global one.
Strategic research identifies two primary paths to competitive advantage, differentiation through product, business model, or customer experience, and operational efficiency, competing not through what you build but through how you build it. The strongest companies build both. But Porter’s research is clear, straddling both without a deliberate choice is a recipe for below-average performance. Most founders pour everything into differentiation. Very few invest with the same intentionality in operations. The companies in the middle, neither clearly differentiated nor operationally sharp, are in the most precarious position.
A differentiated product or business model is one way to win. A differentiated operating model is another. Most portfolio companies are being advised on one and left to figure out the other on their own.
What GP advisory actually covers
Most VC firms add genuine value, board seats, strategic guidance, network introductions, help with the next raise, market positioning, and talent connections. What most GPs privately acknowledge is that this advisory operates at the commercial and strategic layer, revenue growth, market expansion, product direction, and fundraising readiness.
What gets far less attention is how each business actually runs, how the founding team coordinates, how strategy reaches delivery teams, how culture holds as the team grows, whether the right people own the right things, and whether the business is burning capital efficiently or leaking it through friction nobody has named.
Most funds do not have the capacity or the diagnostic tools to get inside the operating infrastructure of 20 to 30 portfolio companies simultaneously. So investors read lagging indicators. By the time the numbers tell a story, the damage has already happened, capital burned, teams misaligned for months. The cost of fixing it is significantly higher than catching it early.
Investors see the numbers. The numbers are a lagging indicator. By the time the data signals a problem, value has already leaked, capital has already burned, and the damage is already harder and more expensive to fix.
The gap between what investors know and what is actually happening
The people who know exactly where the problems are, and where the opportunities are, are the employees inside the business. They know what is working, where the friction is, and what leadership is missing. The question is whether anyone is systematically asking them.
Most investors are not. Most founders are not, at least not in a structured way that produces actionable intelligence at the right frequency. So the operating infrastructure of the portfolio remains largely invisible until the numbers move in the wrong direction.
If investors had real-time visibility into the operational health of each portfolio company, the operating model, the culture, and the employee sentiment, they would know where to spend more advisory time, where to intervene, and where things are working well enough to transfer to other companies. Founders benefit too. The same visibility that helps an investor make better decisions helps a founder understand their own business more clearly before the numbers force the conversation.
Operational maturity is stage-dependent
Operational uplift is not a single intervention applied uniformly across a portfolio. What a pre-seed company needs is fundamentally different from what a Series B company needs. The work is fit for purpose, matched to the stage, the complexity, and the maturity of the business.
Pre-seed/seed: Founding team formation, ways of working, cadence, cultural norms, and the foundations of operational scale.
Seed/Series A: Leadership design, role ownership, planning and delivery rhythms, culture health, and operating model design.
Series A/Series B+: Coordination at scale, cascade and alignment across functions and markets, execution efficiency, and cultural integration.
What portfolio-wide operational uplift actually looks like
The opportunity is not just to fix individual companies. It is to build a systematic capability that operates across the entire portfolio, identifies what is working, and scales it from one company to the next. The pattern of operational problems across a VC portfolio is far more consistent than most investors realise. The underlying challenge, how leaders align, how teams coordinate, and how strategy reaches execution, is remarkably similar from company to company, stage to stage. Firms that capture and transfer that knowledge systematically will have a structural advantage. Not just better individual companies, but better portfolio economics.
How this works in practice
The model runs on three levels, applied consistently across the portfolio every quarter and calibrated to the stage of each company.
1. Portfolio-wide diagnostics
Every quarter, a structured diagnostic assesses each company's operating model health, culture strength, and employee sentiment. Not the founder's view, not HR's view, not the board's view, but the view from the people doing the work. This gives investors real-time visibility across the entire portfolio, surfacing where value is leaking before the numbers confirm it, and identifying where performance is strong enough to transfer to other companies. Stage-aware throughout, the benchmarks for a seed-stage founding team are different from those for a scaling Series B organisation.
2. Targeted micro-interventions
Based on the diagnostic, targeted interventions are deployed where the challenge sits. A Clarity Lab is a structured one-day session for founders and leadership to align on findings, build a change plan, and set a 90-day execution roadmap. An Executive Rewire goes deeper with leadership teams to redesign how they plan, coordinate, cascade priorities, and connect strategy to delivery. An All-In engagement works directly with delivery teams, functions, or divisions to strengthen how the work gets done. Each intervention is fit for stage, at pre-seed it may be founding team formation, at Series A leadership alignment and planning rhythm, and at Series B cross-functional coordination at scale.
3. Portfolio knowledge transfer
Every intervention builds the portfolio playbook. What works at Seed, what works at Series A, what works in specific functions, markets, and scaling challenges. That knowledge transfers systematically from one portfolio company to the next. Scale what works. Retire what does not. Rinse and repeat. The goal is not to fix one company at a time. It is to build a repeatable operational playbook that scales across the portfolio and compounds returns from the inside out.
The bandwidth problem
Most VC firms simply do not have enough operational capacity to go broad and deep across a portfolio simultaneously. There are three options, and each has real limits.
Building an in-house platform team can scale, but only the largest funds have the capital and draw to do it properly. A dedicated Head of Platform costs $200,000 to $400,000 a year before adding the team underneath. A full operational function across a 20- to 30-company portfolio runs into seven figures annually. The math only works at significant fund scale, and even then, platform teams tend to concentrate support on the winners rather than running systematically across the whole portfolio.
Finding the right external operational partners can also scale, but in practice, most external engagements are episodic, company-specific, and disconnected from the rest of the portfolio. The partner helps one company, generates a use case that never travels anywhere, and the fund is back to square one for the next company facing the same problem. Without a portfolio-wide view, external support stays fragmented regardless of the quality of the individual engagement.
Relying on investment partners to carry the operational load cannot scale. Too many competing priorities, deal sourcing, board work, LP relations, fundraising, mean operational depth always gets squeezed. It is not a discipline problem. It is structural.
The result is that mid-sized and emerging funds, managing $50M to $300M, running portfolios of 15 to 30 companies, with lean teams and genuine ambition to add value beyond capital, are the most exposed. Too large to rely on partners alone. Too small to build a platform team. Too busy to solve it properly.
For these funds, the answer is not to build or buy. It is to partner with someone who already has the portfolio-wide model, the diagnostic tools, and the operational playbooks built specifically for how businesses run. Not marketing, not sales, not recruiting, but the operating infrastructure underneath the business, how founding teams work together, how strategy cascades into execution, how culture is designed and held as the business grows, and how leaders plan, align, coordinate, and deliver at every stage of scale. That is a distinct discipline, and it is the one most consistently missing from the portfolio support conversation.
The investor case
The numbers make the case clearly. McKinsey research shows companies that improve operational efficiency achieve a 20 to 30% reduction in operating costs. For a portfolio company burning $400,000 a month, a 20% reduction extends runway by months, often making the difference between reaching the next milestone and running out of capital. Studies also show operational waste consumes 20 to 30% of company revenue in startups. That is not a product problem, that is a recoverable operational problem.
Apply that across a portfolio. If even a portion of the companies in the middle achieve a 20 to 30% improvement in operational efficiency, the downstream effects compound, faster milestone delivery, lower burn, stronger valuations at the next round, and greater investor confidence. In my view, a systematic operational uplift programme applied across a portfolio has the potential to deliver a 2 to 5% improvement in portfolio-wide returns over the life of a fund.
Right now, 5 to 10% of the portfolio returns the fund. The question worth asking is, "What would happen to overall performance if the other 90% ran operationally better?"
Where to start
The right starting point is not to solve the whole portfolio at once. It is to understand what is actually happening operationally inside each company before deciding where to invest time, capital, or support.
Most funds have financial data, board updates, and founder conversations. None of that tells you where the operational friction actually is, what the culture looks like from the inside, or which companies are quietly building the capability to scale and which ones are quietly drifting toward that line of despair.
A portfolio-wide diagnostic changes that. It gives the GP a clear operational map across the entire portfolio, before a problem becomes a number, before a founder asks for help, and before capital has already burned. From there, the fund can make deliberate choices, double down on the companies showing strong operational foundations, intervene early where the diagnostic reveals risk, and transfer what is working from one company to the next. Build a picture of operational health that compounds every quarter.
That is the starting point. Not a full platform team, not a wholesale outsourcing arrangement. A diagnostic-first approach gives the fund real visibility, costs a fraction of building internal capability, and scales without requiring the GP to choose between deal velocity and operational depth.
This is the role of an operational scaling partner, not embedded full time, not a consultant parachuted in to write a report, but arms and legs alongside the founder and the investor, with a portfolio-wide view, a systematic approach to compounding what works, and the ability to transfer knowledge from one company to the next.
The firms that build this capability early will have a portfolio performance edge that is genuinely hard to replicate, not because the idea is novel, but because very few funds have the discipline to act on it before the numbers force the conversation.
The untapped return in most VC portfolios is not in the next deal. It is in the operational potential sitting inside the companies already funded.
Read more from Greg Tennant
Greg Tennant, Scaling Partner to Startups and Investors
Greg Tennant is the scaling partner to some of the world’s most ambitious founders and senior leaders. He is the founder of andExecute, where he helps startups and scale-ups make scale work. Over the last 20 years, Greg has worked across APAC, Central Asia, EMEA, and the US, supporting growth, expansion, and operational scale across more than 20 countries. His experience spans technology startups, global corporations, and industries including automotive, energy, finance, telecommunications, retail, and hospitality. Through andExecute, Greg helps businesses stay aligned, effective, and coordinated as complexity increases. His belief is scale is not a strategy. It is a capability.
References:
[1] BIP Ventures
[2] Pipeline Road
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