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Can a VC Fund Invest in Another VC Fund and Maintain a Diverse Portfolio?

Can a VC fund invest in another VC fund? Let's say they have a portfolio of 10 startups and 2 investments in other VC funds?
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Many LPAs will prevent your fund to invest in another fund. Investment into a non-operating company like a fund most likely counts against your 20% non qualifying investment bucket to maintain the VC exemption for the Manager.
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What type of LPA will allow us to invest in a fund that is focused specifically in a sector that would not conflict with direct investment into other sector portfolio companies?
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See the updated answer above Khaled. 

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