Limited partners measure VC firms not only on their cash-on-cash multiple ("ten-baggers" and such) but on their rate of return, measured from the day of the capital call to the day of the ultimate distribution (after a sale, merger, or IPO). Sitting on cash earning 2% would inexorably drag down the eventual IRR for a particular deal, and eventually for the entire fund.

Which is a longwinded explanation of why VC firms don't have any money, and why they practice "just-in-time" capital calls.

Now, firms are getting worried about their institutional investors defaulting on these calls. You can read samples here, here, here, and here.

But I haven't seen anyone mention a critical element of this problem, which is asset allocation.

CCO of GaTech, Stephen Fleming, explains VC Capital Calls and the current economic crisis's impact on VCs.