Understanding the Performance of Emerging Vc Funds

More funds were launched by experienced VC managers than emerging managers in 2024. It wasn’t always this way. Emerging firms in the U.S. historically closed ~2–3x more funds than experienced managers each year. As recently as 2021, this was still the case. But liquidity constraints over the past three years have driven LPs to heavily favor established managers that have raised 4+ funds. Now the gap is widening in the U.S.: -First-time and emerging VC managers (=3 or fewer funds total) raised the lowest fund totals in a decade. -Of the top 30 firms that raised $500+ million funds, 26 were experienced, and only four were emerging.   -Emerging firms outside of the top 30 totaled just 14% of all VC fundraising in 2024. Having closed our first fund at Kyber Knight Capital in 2023, I bring some bias to this conversation. But I’ve seen first-hand that startup founders at early-stage startups benefit from hands-on, always-available investors opening their Rolodex to help them hire the best talent, acquire customers, and accelerate distribution. Unsurprisingly, what’s good for founders is also good for LPs. -60% of the top-performing VC firms in recent years were led by emerging managers, particularly in seed and early-stage investments. As an industry, we all need distributions to return to normal levels. Beyond benefitting startup teams and LPs, it should also right the ship in recycling more capital back into emerging VC firms vs brand names. Source: PitchBook #VC #VentureCapital #Startups

𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗩𝗖𝘀: 𝗪𝗵𝗼 𝗶𝘀 𝗪𝗶𝗻𝗻𝗶𝗻𝗴 𝗶𝗻 𝟮𝟬𝟮𝟱? While the VC industry is experiencing its biggest set of challenges in over a decade, 𝙨𝙤𝙡𝙤 𝙂𝙋𝙨 𝙖𝙧𝙚 𝙦𝙪𝙞𝙚𝙩𝙡𝙮 𝙤𝙪𝙩𝙥𝙚𝙧𝙛𝙤𝙧𝙢𝙞𝙣𝙜. 𝗧𝗵𝗲 𝗙𝘂𝗻𝗱𝗿𝗮𝗶𝘀𝗶𝗻𝗴 𝗟𝗮𝗻𝗱𝘀𝗰𝗮𝗽𝗲 𝗶𝗻 𝟮𝟬𝟮𝟱: • H1 2025: $26.6B raised across 238 funds (decade low) • First-time fund managers: Only $1.8B raised across 44 funds (⬇️ 32% YoY) • Median time to close: 15.3 months (⬆️from 12.6 months in 2024) • Top 30 VC firms captured 74% of all LP commitments 𝗕𝘂𝘁 𝗛𝗲𝗿𝗲'𝘀 𝗪𝗵𝗮𝘁'𝘀 𝗥𝗲𝗮𝗹𝗹𝘆 𝗛𝗮𝗽𝗽𝗲𝗻𝗶𝗻𝗴: • The Median VC fund from 2018-2024 hasn't returned more than 0.03x DPI • Smaller funds consistently deliver higher TVPI across ALL vintage years • At the 90th percentile, small funds hit 4.17x TVPI vs 2.59x for $100M+ funds (2017 vintage) 𝘛𝘩𝘦 𝘴𝘮𝘢𝘳𝘵 𝘓𝘗𝘴 𝘢𝘳𝘦 𝘭𝘰𝘰𝘬𝘪𝘯𝘨 𝘧𝘰𝘳 𝘥𝘪𝘧𝘧𝘦𝘳𝘦𝘯𝘵𝘪𝘢𝘵𝘪𝘰𝘯 & 𝘵𝘰𝘱 𝘵𝘪𝘦𝘳 𝘱𝘦𝘳𝘧𝘰𝘳𝘮𝘢𝘯𝘤𝘦 - 𝘯𝘰𝘵 𝘳𝘪𝘴𝘬 𝘢𝘷𝘦𝘳𝘴𝘦 𝘴𝘢𝘧𝘦 𝘣𝘦𝘵𝘴 𝗧𝗵𝗿𝗲𝗲 𝗧𝘆𝗽𝗲𝘀 𝗼𝗳 𝗦𝗼𝗹𝗼 𝗚𝗣𝘀 𝗔𝗿𝗲 𝗪𝗶𝗻𝗻𝗶𝗻𝗴:* 1️⃣ Former operators (Joshua Browder, Nik Milanovic) 2️⃣ Tier 1 VC spinoffs (Rex Salisbury ex-a16z, Peter Boyce II ex-GC) 3️⃣ Social influencers (Packy McCormick, Turner Novak) *Several GPs also fit into multiple categories above 𝗧𝗵𝗲 𝗦𝗲𝗰𝗿𝗲𝘁 𝗪𝗲𝗮𝗽𝗼𝗻: • Almost all of these solo GPs started small & worked their AUM up • Most raised from high net worth LPs, which are ~56% of sub-$10M funds • Median commitment size in Fund I under $10M: Just $75K 𝗪𝗵𝘆 𝗦𝗼𝗹𝗼 𝗚𝗣𝘀 𝗔𝗿𝗲 𝗪𝗶𝗻𝗻𝗶𝗻𝗴: • Speed: No partnership politics, instant decisions • Specialization: Deep expertise mega-funds can't match • Founder alignment: Often former operators who get founder mentality • Lower fees: Leveraging technology with smaller teams means more shots on goal, more capital goes to startups, and less legal overhead • Secondaries: Liquidity in a $60B+ secondaries market is a top LP priority 𝗧𝗵𝗲 𝗕𝗼𝘁𝘁𝗼𝗺 𝗟𝗶𝗻𝗲: While everyone chases bigger teams and Blackstone-in-a-hoodie strategy, solo GPs are quietly building the future of venture. They're not trying to be smaller versions of a16z—they're creating an entirely new playbook. Sources: Alex Klein/Nucleus Talent, Carta, PitchBook-National Venture Capital Association Q2 2025 Venture Monitor

Want to get inside the mind of an active allocator to emerging manager venture and understand how to drive the most meaningful returns as a LP? The latest Alt Goes Mainstream by The AGM Collective episode with active allocator to emerging managers Jamie Rhode, CFA, a Principal at Verdis Investment Management, is an important listen for any emerging manager VC or LP spending time in venture. Jamie and I had a fascinating discussion. We covered: * Why Jamie believes that 90% of investment returns come from asset allocation strategy. * Why smaller funds often drive the best returns. * Why illiquidity and duration are so critical to producing outsized returns, with Verdis finding that the last 20% of the hold period of a fund producing 46% of the returns. * Why Verdis believes in the strength of the YC network. * The perfect fund size and portfolio construction. * Why former operators may not make the best fund managers in Jamie’s view. Thanks for coming on the show to share your wisdom and data-driven perspectives, Jamie. https://lnkd.in/eikRbPNc

Is venture capital return dispersion going to increase? This week from Carta published its fund performance report (h/t Peter Walker for great content as always). Putting the pieces together, I wanted to share three counterintuitive takeaways/predictions. The first today concerns venture returns. When I was at Kauffman Fellows, Ilya Strebulaev explained (to the shock of many who hear it the first time) that the median #venturecapital fund returns ~1x (and many less than that!). The natural question is why do so many people invest in VC? Because of outliers. The average VC return is much higher and the top quartile/decile even higher still. Some top VC funds have returned in excess of 50x or more. Over the last few years, there has been an explosion of VC funds and startups. Peter shows that among the top VC funds (top decile), the best performers are smaller funds. Yet, smaller funds on average have also decreased their average performance. This suggests that there is greater dispersion than before in VC outcomes. This makes sense. 1. If any VC invests between 20-40 companies (yes some do much more or less: looking at you Scott Hartley & Daniel Kimerling respectively) 2. There has been an explosion of startups, and thus underlying companies to choose from 3. Home runs are becoming larger and even more important (unicorns used to be rare, but now there are many decacorns) 4. Larger managers are often taking more of a round, decreasing the potential for party rounds (H/T Rafael Correa) Therefore, my conclusion is that we should see a larger dispersion of VC returns in the years to come. This certainly seems to be the case in the data. The counterpoint to this argument has been early vintage performance. However, it is likely too early to know how this lands given 2023 vintage is the only one post the crisis and downturn. And if smaller funds are more likely to be the outlier, but there are more of them, there will also be a role for dedicated FOF players to sift through. This will make players like Allocator One, Emergence (Yannick Sonnenberg & Benedikt Franke), Cendana Capital, Allocate, Franklin Park (Ritujoy Narayan Chowdhury), 1200vc and others who have been focused on the category. Full report here: https://lnkd.in/en4Ykwpc