# Small initial stakes can dilute a fund's biggest winner

Markdown copy of https://realalpha.app/s/small-initial-stakes-can-dilute-a-funds-biggest-winner/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Gavin Ezekowitz](https://realalpha.app/people/gavin-ezekowitz/) · Gavin Ezekowitz is co-founder and chief investment officer of BFA Global Investors. · Built a career across capital markets and investment banking, then became a venture and growth investor.
- Host: [David Weisburd](https://realalpha.app/people/david-weisburd/)
- Show: How I Invest
- Episode: [Gavin Ezekowitz on AI Valuations, Asymmetric Returns, and Why Great Investors Fail](https://realalpha.app/v/-aC4qH9eMsM/), Oct 28, 2026
- Moment: 43:18 to 46:29 of the episode (3 min), playing on https://realalpha.app/s/small-initial-stakes-can-dilute-a-funds-biggest-winner/; the episode from there: https://realalpha.app/v/-aC4qH9eMsM/?t=2598

## Quote

> “if they didn't get enough of the company in that pre seed stage, because of the nature of how they were investing, **their returns just got so diluted**”
> — [Gavin Ezekowitz](https://realalpha.app/people/gavin-ezekowitz/) at [43:34](https://realalpha.app/v/-aC4qH9eMsM/?t=2614) · How I Invest

## Takeaways

1. A breakout can still be immaterial if initial ownership is too small.
2. The fund adjusted its allocation method to reserve later capital.
3. Follow-on concentration can make a winner matter at the fund level.

## About this segment

A manager found its early Cursor allocation was too small to move fund returns, even after the company became a major winner. The team changed its approach to reserve more capital for follow-ons.

From “Gavin Ezekowitz on AI Valuations, Asymmetric Returns, and Why Great Investors Fail”, Oct 28, 2026. [Watch the full episode](https://realalpha.app/v/-aC4qH9eMsM/)

## Transcript

From the transcript How I Invest publishes with the episode.

[43:30](https://realalpha.app/v/-aC4qH9eMsM/?t=2610) One of my favorite stories in that regard is a fund who had an exceptional performance in Cursor. And the manager only afterwards realized that part of the challenge of their allocation process was that mathematically, if they didn't get enough of the company in that pre seed stage, because of the nature of how they were investing, their returns just got so diluted even when you got these massive winners at a fund level.

[44:01](https://realalpha.app/v/-aC4qH9eMsM/?t=2641) Like if it was your individual investment, it'd be great. But at a fund level. And they had to adjust their whole allocation methodology, say, Look, we've got to rethink this because we need more capital weight slightly later. We don't want to put it all super early. Their approach is different. But we need to be able to rebalance some capital slightly later and to follow on because otherwise, when we do have these asymmetric returners, it's just not meaningful enough.

[44:31](https://realalpha.app/v/-aC4qH9eMsM/?t=2671) That's almost a mark of all the top venture funds as they've evolved now into their follow on capital is it's much more concentrated. Founders Fund is famous for doing it to the extreme, putting, like, half of their fund into one company, like a SpaceX or Airbnb. But on a on a lesser scale, they'll take a third of their follow on capital and put it in one of three companies. Mhmm. They'll... Instead of...

[44:55](https://realalpha.app/v/-aC4qH9eMsM/?t=2695) They might have twenty first first checks and, you know, three three follow on checks. We land closer to that, which is like, okay. You try to get 20 really good asymmetrics. Some of them take off, and you put it in kind of those those rockets. We pay as allocators for conviction. Right? I mean, we're we're buying conviction. And I think that that's fantastic. I often say to our venture managers that the real magic is that you're willing to bet, you know, your business, your reputation on on on, like, meaningful portfolio returners.

[45:36](https://realalpha.app/v/-aC4qH9eMsM/?t=2736) Like, it's a big deal. Like, it's a really big deal. I mean, getting them wrong is very painful. But for that, you deserve an excellent return for yourselves and when you get it right. I think there's nothing wrong with that at all. But I'd rather have that outcome, the outcome where you have conviction, you have a big winner, you make a monstrous return out of the carry, then have folks who are trying to cut the middle ground, not get it too wrong.

[46:11](https://realalpha.app/v/-aC4qH9eMsM/?t=2771) If we do it this way, can we then go and raise another fund? I am seeing, you know, it's a good process.