Venture Capital Fund of Funds
An investment fund that deploys capital into multiple venture capital funds. Common vehicle for institutional investors accessing Israeli startups indirectly.
Venture Capital Fund of Funds is an investment vehicle that deploys capital into multiple venture capital funds rather than directly into startups. A fund of funds (FoF) is typically managed by an institutional investor, pension fund, or specialized manager and serves as an intermediary between limited partners (LPs) and venture GPs (general partners).
Structure & Economics
FoF investors commit capital to a fund, which then sources and invests in 10–30+ underlying VC funds. Each underlying fund makes direct investments in 30–100 startups. FoFs charge their own management fee (typically 0.75–1.5%) on top of the VC fund's fee (2%), and take a carry (profit share) on successful exits. This creates a "double fee" structure—a trade-off for diversification and professional fund selection.
Israeli Ecosystem Context
Israel's largest pension funds (Clalit Pension, Histadrut Pension) and institutional investors (insurance companies, banks) have historically deployed capital through FoF structures into Israeli venture funds. This has been a primary mechanism for channeling institutional capital into the Israeli startup ecosystem. Government bodies (Office of the Chief Scientist) also operate FoF-like programs, co-investing with private VCs.
Advantages & Limitations
Advantages: diversification across fund managers and sectors; reduced due diligence burden; exposure to top-tier VC managers; passive institutional investment vehicle. Limitations: higher fees reduce net returns; slower deployment (FoF must first raise capital, then underlying funds deploy); limited control over individual company investments; crowded market (many FoFs compete for allocation in top-tier VC funds).
Recent Trends
Israeli pension funds have increasingly shifted toward direct venture investment (reducing FoF reliance) and increased allocation to later-stage and private equity vehicles. However, FoFs remain a primary vehicle for smaller institutional investors and international LPs entering Israeli venture markets.