VCs represent a very specialized source of capital which is inherently high cost. Their investors which tend to be large pension funds, university and other endowments, sovereign funds, large family offices, etc., have a much higher return expectation from the asset class in line with the inherently higher risks involved. Additionally most funds are structured on 80/20 split of the profits (meaning that the VCs get to keep 20% of the profits only after they have returned the entire corpus of the fund). So most VCs are driven to make investments that would help them get to a point where they have returned their corpus and are able to share in the profits. This is where the fund size comes in. If we assume that out of a portfolio of 30 investments somewhere between 5-10 can have return multiples of 5-10 times the original capital invested, then a VC needs to be able to return his corpus from their 5-10 investments and also make profits on top of that so that he/she can get paid. For a $100M fund a return of $20M from a single investment would be considered a very good outcome as 5-6 of those would return the entire fund whereas for a firm with a fund size of $1B the same return hurdle would need to be $100M before it can be considered a good outcome.

As an entrepreneur one needs to make sure that they understand the return expectations and hurdles of their potential investors and should carefully match that with the potential of the opportunity before partnering in order to avoid disagreements and acrimony later on in the lifecycle of the venture.