Emerging managers win

The biggest venture firms in the world are amassing war chests that rival sovereign wealth funds. But there’s one kind of investor that’s putting these behemoths to shame…

My friend Trace Cohen put together an impressive analysis comparing the performance of mega VC funds ($2B+ AUM) to more nimble emerging managers.

But how can a first-time fund manager with $20M compete with an international venture firm with billions under management?

Well, it turns out they can. And Trace has the data to prove it:

🌟 Out of 72 $2B+ VC funds, only 3 mega funds (4%) have crossed 3x TVPI, and just 1 fund (1%) has achieved 3x DPI.

🌍 Across a larger dataset, 648 $2B+ funds, only 15 (2%) have crossed 3x TVPI, and just 5 funds (1%) managed to cross 3x DPI.

📈 Venture funds smaller than $350 million are 50% more likely to generate a 2.5x return than funds larger than $750 million.

💡 Nearly 18% of first-time funds nab an internal rate of return (IRR) of at least 25%, while later funds only exceed that number about 12% of the time.

I think Trace said it best:

“If you're looking to invest in outliers, groundbreaking technology, and the next big thing, you need to consider emerging managers. These are the true scouts—identifying diamonds in the rough, taking the boldest risks, and positioning themselves for the biggest rewards.

When choosing a manager, ensure they offer opportunities to learn, co-invest, follow on, and actively support their portfolio companies. Keep in mind, building a successful startup takes time. Raising additional capital, scaling operations, and achieving a meaningful exit is a long-term journey. Investing in this space means committing to a partnership that spans years—patience and collaboration are key.”

Look for emerging managers.