Fund Structure
What is an emerging manager?
Quick Answer
An emerging manager is a VC fund manager raising their first 1-3 funds, typically with a smaller fund size ($5M-$100M). Research shows emerging managers often outperform established firms, as they're hungrier, more focused, and closer to founders.
Detailed Answer
Emerging managers are the newest generation of VC fund managers. They're typically on Fund I, II, or III and building their track record.
Profile of an emerging manager: - Fund size: $5M-$100M (typically $10M-$50M for Fund I) - Team: 1-3 GPs (often solo GP for Fund I) - Background: Former operator/founder, angel investor, or VC associate/principal - Differentiation: Specialized thesis, unique deal flow, founder network
Why emerging managers often outperform: - **Hunger** — More motivated to generate returns to raise future funds - **Focus** — Smaller portfolios mean deeper company support - **Founder access** — Often closer to early-stage founders than large firms - **Flexibility** — Smaller fund sizes allow investing at earliest stages - **Data** — Cambridge Associates data shows Fund I-III managers outperform on average
Challenges: - Harder to raise from institutional LPs (who prefer track records) - Limited operational infrastructure - No brand recognition for deal flow - Resource constraints for portfolio support
The emerging manager ecosystem: - Dedicated LP programs (Kauffman Fellows, RAISE Global) - Fund-of-funds focused on emerging managers - Emerging manager accelerators (First Round, Operator Collective)
LP perspective: Allocating 10-20% to emerging managers is increasingly common as an alpha-generation strategy.
Related Questions
What is venture capital?
Venture capital is a form of private equity financing where investors provide capital to early-stage, high-growth startups in exchange for equity ownership, typically expecting 10x+ returns over 7-10 years.
How do venture capitalists make money?
VCs make money through two streams: management fees (typically 2% of fund size annually, covering operating costs) and carried interest (typically 20% of fund profits above a hurdle rate, which is where real wealth is built).
What is carried interest in venture capital?
Carried interest (carry) is the share of investment profits — typically 20% — that fund managers (GPs) earn as performance-based compensation after returning LP capital plus a preferred return (usually 8%).
How do you raise a venture capital fund?
Raising a VC fund involves establishing a legal entity (LP structure), defining your thesis and target fund size, building a track record, creating fundraising materials (PPM, pitch deck), and securing commitments from LPs over 6-18 months.