Saint Clair · Soft Due Diligence | November 2023

The practised investor reads with two minds. The rational mind asks the documented questions, takes the financial measurements, weighs the legal architecture. The second mind, which the working language calls gut feel, registers patterns the rational mind has yet to articulate. Soft Due Diligence is the institutional discipline of using both — and of saying, in language the institution can audit, what each mind contributed to the decision.

The published research is consistent on the second mind’s importance. M&A deal teams that examine soft factors intentionally and systematically realise post-deal synergies at materially higher rates [1]; venture capitalists who attend to soft factors close more successful investments [2]. The relevance is sharpest where tangible data is thin: early-stage venture investments, allocations to first-time funds, secondary transactions where the principal’s narrative is the documented basis for the price.

What is actually happening when a practised investor reads soft factors well? The answer carries two layers. The first is the rational floor: knowing where to look, planning ahead to see the whole picture, treating the reading as a method an institutional body can teach and audit. The discipline rests on it. The second layer is the working subject of this article.

The Venture Capitalist’s Magical Powers

Venture capitalists tend to define themselves by the ability to find a good deal. Most of them, when asked how they do it, do not have a clear answer. The available research [3] confirms that VCs largely do not understand their own decision-making process — and are largely comfortable with that.

“Gut feel” is the most common explanation. The phrase carries a useful aura: an additional capability, intuitive, exempt from logical accounting, available only to those who have it. The aura is convenient. Subsequent research [4] shows VCs are notably poor at introspecting on their own decisions; the gut-feel explanation is at least partly a defence against the difficulty of the introspective work.

Laura Huang’s 2015 work in Administrative Science Quarterly [5] examined investor decision-making at length and arrived at a precise account: gut feel is the joint product of accumulated experience and emotional weight, recognising patterns the conscious mind has yet to articulate. The aura around the phrase is older than the research. The cognitive register beneath it has been there all along.

Two systems, two roles

Daniel Kahneman’s Thinking, Fast and Slow [6] gives the cleanest map of the cognitive architecture at work. The mind operates two systems. System 1 is the bank of pre-configured routines that handle the mental work of daily life: the instant answer to one plus one, the recognition of a familiar face, the feeling that something is off in a conversation before the rational mind has named it. System 2 is the slower, effortful machinery that solves problems System 1 has yet to build a shortcut for. Asked to compute 178,262 divided by 512, most readers will pause, narrow their visual field, breathe differently, perhaps mutter under their breath: System 2 has been recruited, and it costs.

When System 2 has solved a particular problem often enough, the brain packages the procedure for handover to System 1. The next time the problem appears, the answer arrives without effort. This is part of how learning works.

It is also part of how biases form.

A System 1 shortcut is fast because it accepts approximate matches: a situation that resembles the trained one well enough is processed as the trained one. The match is tolerant by design — the alternative would render the shortcut useless. The tolerance is also how the wrong answer arrives confidently. I have seen this a thousand times, I know what to do is sometimes accumulated wisdom and sometimes the law of the instrument: with a hammer in hand, every problem looks like a nail.

The investor who relies on System 1 alone is fast and frequently wrong. The investor who relies on System 2 alone is slow and exhausted. The practised reader uses both.

The dissonance signal

How does the mind know that a situation needs the slower system? One of the cleanest accounts comes from Leon Festinger’s A Theory of Cognitive Dissonance [7]. The mind, Festinger argues, runs on a kind of background consonance check: as long as the perceived world fits the expected world, attention can stay on autopilot. When something does not fit, attention is recruited.

The motorway is the everyday illustration. A practised driver covers a long stretch with little conscious attention; System 1 handles the lane discipline, the speed, the spacing. Twenty kilometres later the driver may briefly wake to the question of how the previous twenty kilometres were driven at all — apparently unconsciously, at high speed, and without incident. The answer: by System 1, competently. Now insert a car drifting unpredictably between lanes ahead. The dissonance is immediate. System 2 fires up; the rational analysis kicks in; the driver is fully present, alert, and ready to react.

In a venture investment evaluation, the dissonance signal arrives often. The financial projections do not match the roadmap. The team’s account of the market does not match the customer interview transcripts. The founder’s calm answer to a question carries something the rational analysis has yet to name. Each of these is a System 2 trigger. The discipline of Soft Due Diligence is in part the discipline of taking those triggers seriously.

The second self

The part of the mind that runs the consonance check while the rest of attention is elsewhere has had several names. C. G. Jung’s account, articulated in the early twentieth century, is one of the durable answers. Jung described the subconscious as a distinct cognitive instance, drawing on personal experience but also on inherited and collective patterns. Where the conscious mind reasons, the subconscious monitors, registers, and signals.

The proposition raised controversy in its time, and psychology has spent more than a century qualifying Jung’s propositions. The model holds nonetheless as a useful working description of an observable competence. What Huang names gut feel is, in this reading, at least in part the conscious surface of subconscious work: pattern recognition informed by accumulated personal experience and, in Jung’s account, by the longer experience the species carries. The subconscious is also a candidate for the monitoring instance the dissonance signal recruits: a background process registering inconsistency before the rational analysis catches up. The discipline borrows from the cognitive sciences ruthlessly and bends what it borrows into a shape that does the work Soft Due Diligence asks of it; psychologists have not been harmed in the working.

The palaeolithic illustration restates this. A rustle in the leaves at the edge of vision; an uptick in adrenaline; a feeling of unease before any predator has shown itself. The second self has noticed something while the conscious mind attends to the meal at hand. Long before the sabre-tooth tiger emerges, the body knows. When the tiger does emerge, all systems power up at once: fight, flight, or — the option modern conditions tend to disfavour — freeze. The discipline of trusting both selves is older than the species that articulated it.

Restoring consonance, deliberately

Festinger’s model goes one step further. Cognitive dissonance prompts action: the mind tries to reduce the inconsistency, either by changing the perception, by adding consonant elements, or by adjusting the underlying belief. In practice, the action is fast and frequently invisible. The startup founder offers a plausible reconciliation between the financial model and the roadmap, and the dissonance dissipates. The rustle in the leaves was a passing animal. Alert ends.

For the investor, the speed of the resolution is the risk. The whole dynamic — dissonance, attention, resolution — can run to completion before the conscious mind has noticed it ran at all. The reading is over before the reader has registered there was a reading. What the second self caught, the first self has already explained away.

The discipline is to slow that process down. To pause long enough to ask where the dissonance came from. To treat the unease as data before allowing the rationalising mind to file it. The vocabulary helps: I do not feel this thing, in French — je ne le sens pas, ce truc — the working colloquial framing for the cognitive event the academic literature describes more elaborately. The feeling sits somewhere in the body. It carries information.

Making it intentional

The practical discipline is short.

First, listen. In a working culture that defaults to rationality and quantification, the emotional register is undertreated. Feelings are a parallel evidentiary stream. The accumulated experience of the second self is worth admitting to the conversation.

Second, follow the dissonance signal consciously. When the unease registers, ask where it came from. Sometimes the trigger is easy to identify: a phrase, a contradiction, a transcribed account that does not match the documented one. Sometimes the trigger is harder to surface, and the right move is to step away from the desk. Take a walk; replay the meeting in mind; let the conscious attention defocus. The trigger often surfaces when the mind is permitted to wander. This is the same cognitive geometry artists and designers use; nothing exotic about it.

Third, write it down. The reading discipline written down is the reading discipline audited; the institutional reader’s authority depends on auditability. The framework, the weights, the surprises, the resolution: these are the artefacts the second self has produced and the first self has integrated. The act of writing forces the integration to be explicit.

The discipline of Soft Due Diligence puts both cognitive registers to work. The rational analysis and the second self are two evidentiary streams, and the institutional table seats both. The discipline gives the institution language to audit what each register contributed to the decision.

The investor who refuses the second self is leaving a fully accredited cognitive partner outside the room.

Sources: References as numbered citations above. Originally published 3 November 2023 on softduediligence.com under the title Trust your selves – both of them: The Role of Conscious and Subconscious Cognitive Processes in Soft Due Diligence. Revised and republished under Saint Clair editorial, 2026.

Disclaimer: This article is for informational purposes only and does not constitute investment or business advice. All decisions should be made based on independent research and consultation with qualified advisors.

About Saint Clair — Advisory & Capital: Saint Clair designs and builds cross-border capital infrastructure between Europe and Asia — proposing access where access is scarce, and creating structure where structure is absent. We guide Asian technology companies through European market entry, partnership development, and cross-border expansion. Since 2016.

Learn more: saintclair.sg | Contact: contact@saintclair.sg

(Photo by Noelle Otto, Pexels)

Saint Clair · Soft Due Diligence | July 2023

The previous article in this series made the structural case for including emerging fund managers in an institutional venture capital portfolio. The data is consistent across long horizons: emerging and first-time funds outperform the higher-numbered cohort, particularly at the early stages of the venture life cycle. The argument is for the structural completeness of a balanced allocation.

The case is structural; the execution is methodological. An emerging manager is, almost by definition, an investment evaluated under information-deficient conditions. The track record is short or absent. The team is small. The cost base is light. The thesis is sharp by necessity. The methodology of evaluation is therefore the part of the allocation that determines whether the structural case converts into a working position.

This article articulates the methodology. It draws on the academic foundation of Soft Due Diligence (research at TUM School of Management on narrative sensemaking in venture capital decision-making) and on the discipline a practised limited partner brings to the reading. The frame is brand-attributed and deliberately operational; the white-paper-grade treatment lives elsewhere in the Saint Clair publication architecture.

The two success conditions

A piece of the methodology that warrants close attention: every institutional venture investment carries two distinct success conditions. The 2023 thesis named them; the discipline of reading emerging managers depends on holding both in view at once.

Business Success is the operational outcome. The portfolio company executes its proposed business model, generates value, reaches commercial milestones, returns capital and profit to the fund. For an emerging manager, Business Success means the fund’s investment cycle works: the manager sources good deals, evaluates them well, manages the portfolio, and produces a financial return that justifies the management fee and clears the carry hurdle. This is the part of the reading that tracks closely to the rational diligence the working language already takes for granted.

Investment Success is the relational outcome. The relationship between investor and fund manager (and below it, between fund manager and portfolio founder) sustains alignment, trust, and transparency across the decade or more required for the value to compound. Investment Success is what the working language calls the partnership; the partnership decides whether the financial projections will be permitted to play out.

A fund can deliver Business Success while failing on Investment Success: the returns arrive, the working relationship corrodes, the limited partner declines Fund II and warns peers off the manager. A fund can deliver Investment Success while failing on Business Success: the relationship is impeccable, the numbers fall short, the manager is passed over for the next fund regardless of the warmth of the meetings.

Soft Due Diligence is the discipline of reading both conditions. The structure that follows separates the hard-fit reading (toward Business Success) from the soft-fit reading (toward Investment Success); in practice the practised reader holds them together. Soft factors are present in both registers; the rational analysis is present in both. The separation organises the reading; the reading itself is integrated.

The hard-fit reading: toward Business Success

Seven categories of evaluation, each with a soft factor running through it.

Investment terms

The first filter is the easiest to apply: the limited partner’s allocation strategy meets the fund’s terms and conditions, fee structure, and governance principles, or the terms become a working conversation. A 2.5 per cent management fee on a small first-time fund may be unattractive in isolation, but the fund’s structural simplicity may make the fee economically viable. The reading is calibrated. The dealbreakers (basic alignment of investment perimeter, conflict provisions, key person clauses) sit ahead of the more flexible considerations.

Investment thesis

The thesis is the picture into which everything else has to fit. For an emerging manager, the thesis must be sharp, focused, and characteristic. A small fund cannot afford a broad thesis; the structural advantage of the emerging manager is the discipline that comes from having to specialise. A first-time fund with a market thesis indistinguishable from a generalist Series A platform has misread its own structural position.

The reading examines the thesis for coherence (whether the manager’s profile matches the thesis), focus (whether the thesis excludes as clearly as it includes), and edge (whether there is a characteristic angle no other fund has the standing to claim). The thesis is also the document against which every subsequent reading is checked: when the team composition is examined, the question is whether the team can execute this thesis; when the fund strategy is examined, the question is whether the strategy implements this thesis. The thesis is the audit baseline.

Fund manager

The track record is short or absent; the reading is therefore on the person, the route to the position, and the evidence the person carries from the work that preceded the fund.

A spin-off from a mature platform brings the track record of the prior position. A founder turned investor brings the operating credibility of the venture they built and the network the venture produced. An ecosystem operator (incubator director, accelerator partner, syndicate lead) brings the deal-flow and the evaluation muscle the role developed. The reading examines the prior position for the disciplines the role demanded. The discipline of evaluating ventures and the discipline of building relationships are the two most consistent predictors of fund-management capability, and both are visible in adjacent professional history.

The reading also examines the gaps. A gap in management experience reads as normal at this stage; a gap in specialism reads as a structural mismatch. The reading separates the kinds of gap with care.

Fund team and ecosystem — the onion-skin reading

Venture capital is a relational industry, and the emerging fund’s network is part of its operating capability. The 2023 articulation introduced the onion-skin model: three concentric layers of relationship, each carrying a different load.

The innermost layer is the operating team itself. Even a single-manager fund has a team in the working sense: an EA, a fund administrator, a part-time analyst, the spouse who carries the working life that the fund obscures. The reading examines whether the working capacity matches the fund’s ambition, whether the manager has built a peer relationship inside the operating team or runs as a single mind with assistants, whether the inevitable second perspective the manager will need under pressure exists in the structure.

The middle layer is the extended team: venture partners, formal advisors, mentors, the structured access to expertise the fund leans on for thesis-adjacent decisions. The reading examines whether the extended team complements the manager’s strengths and adds capability the team lacks, whether the access to expertise is real or aspirational, whether the relationships are documented and operating or implied and unworked.

The outermost layer is the ecosystem: peer funds, professional networks, industry institutions, the rooms the manager is invited into. The reading examines whether the manager’s standing in the wider ecosystem is consistent with the access the fund will need to source and co-invest. This reading is also the most tonal of the three; standing is rarely declared, and it is visible in the working geometry of the manager’s professional life.

The three layers carry different weight at different stages. For a first-time fund the operating team carries the most load; for a Fund II the extended team often becomes the structural advantage; for a Fund III the outermost layer has begun to compound. The reading calibrates by stage.

Fund organisation

Emerging funds are nimble by necessity. The structural simplicity is part of the case for them. Nimbleness converts into performance when the organisation is designed for the work it has to do.

The reading examines the cost base against the fund’s ambition. A first-time fund with too much overhead is bleeding management fees that should be working in the portfolio; a first-time fund with too little overhead is asking the manager to perform fund administration, deal sourcing, deal evaluation, portfolio management, and limited-partner reporting simultaneously, and the result is exhaustion. The institutional reader looks for the proportion that supports the fund’s actual work, calibrated to the number of investments the fund will make and the value-adding model the manager has committed to.

The reading also examines the manager’s own remuneration. A management fee that pays the manager a working salary across the fund’s life sustains the operating commitment; a fee that fails this test produces motivational decay (the manager looks for outside income; the fund’s late stages, where most of the value-adding work happens, are conducted on borrowed time). The reading expects calibration as a sign of seriousness.

Fund strategy

The thesis is the picture; the strategy is the implementation. Deal sourcing protocols, evaluation methodology, investment decision rules, post-investment value-adding, follow-on policy, and exit ambition. The reading examines whether the strategy is articulated as an operational document (a working playbook) or as a set of intentions still untested.

A first-time fund’s playbook is necessarily provisional. The reading expects the provisional, and examines whether the manager has built the protocol of revising the playbook in light of evidence. The discipline of organisational learning matters more, at this stage, than the polish of the initial document. A manager who plans to revise the playbook quarterly and review it annually is more likely to converge on a working approach than a manager who has codified Year One in advance and assumes the codification will hold.

The VC–founder relationship

The fund’s working relationship with its portfolio founders is the operating layer below the LP–GP relationship, and the working culture at that layer determines much of the fund’s deal-sourcing capability. Founders talk; the funds that founders recommend to one another are the funds that have built the relationship discipline at the operating layer.

The reading examines the manager’s articulated approach to founder relationships: hands-on or hands-off, control-attentive or supportive, transparent or compartmentalised. Each is a working choice with consequences; the structural question is fit between approach and the founders the fund wants to attract. A control-attentive fund matches founders who want a senior hand on the cap table; a supportive fund matches founders who want a working partner. The mismatch on either side produces working friction.

The reading also examines the manager’s empathy with founders as an institutional capacity. The founders are one of the fund’s two customer segments; the manager whose working register meets the founders’ working register is selling into a market the manager already inhabits.

The soft-fit reading: toward Investment Success

The soft-fit reading examines the LP–GP relationship’s capacity to sustain across the fund’s working life. Three categories.

Purpose

Why is this manager raising this fund? The question is about the deeper motivation that will keep the manager in the work for the decade or more the fund requires — the motivation that runs beneath the investment thesis and the financial opportunity.

Emerging managers raising successfully tend to carry an articulated purpose: to make a particular kind of innovation possible, to address a structural gap in capital allocation, to build institutional access to a market the established firms have overlooked, to produce environmental or social impact while producing returns.

The reading examines the alignment between the stated purpose and the operating evidence. The mission paragraph in the deck is the articulation; the manager’s career history, working choices, and reference patterns are the evidence. Where the two converge, the purpose is durable. Where they diverge, the purpose is a marketing artefact, and the next difficult cycle exposes it as such.

The institutional limited partner brings a purpose to the relationship as well. Cultural foundations, family offices, public-mission allocators, corporate strategic capital — each carries an investment purpose beyond return alone. The reading examines whether the manager’s purpose and the limited partner’s purpose can sustain a working relationship across the periods when the financial returns have yet to land.

The fund manager personally

The fund manager’s working life is one of relationships and pressure. Fund cycles are long. The early years are absorbing. The middle years require the manager to handle problems the fund’s portfolio companies are too small to solve internally. The late years require the manager to find liquidity for portfolio companies still maturing toward it.

The reading examines whether the manager’s personal context (partner, family, working environment) is set up for the durability the fund requires. The question is structural: a manager whose private life accommodates the working demands of fund management produces a Fund I that closes and a Fund II that follows. The institutional limited partner has a stake in the working sustainability of the manager’s life; the reading is part of the diligence.

The reading also examines the manager’s culture of decision and disagreement. The team-of-one manager whose late-cycle performance compounds is the manager who has built the discipline of having important decisions challenged before they are committed, whether through a formal mentor, a structured peer relationship, or an investment-committee equivalent the fund convenes by design. The reading is for the working evidence of that discipline.

The LP–GP working relationship

The communication discipline of the working relationship is the operational signal of Investment Success. Emerging managers, holding less brand recognition than established firms, tend to communicate more. The reading examines whether the additional communication is performative or structural.

The reporting documents are the working artefact. The reading examines them at three levels: content (what the manager is actually telling the limited partner), craftsmanship (whether the documents are readable and useful), and register (whether the manager treats the limited partner as a partner in the working relationship or as a remote audience). The institutional limited partner is paying for the relationship as well as for the returns; the reporting is the visible part of the relationship and reflects the underlying register.

The reading also examines the working pattern of unscheduled communication. The manager whose working register is partnership tells the limited partner about a problem before being asked. The pattern is durable across cycles and is a stronger predictor of late-stage relationship health than any quarterly metric.

The 2026 environment

The 2023 articulation of this evaluation discipline stood inside a different macro context. The conditions for emerging fund managers have shifted in the cycle since, and the discipline of evaluating them in 2026 carries an additional weight the 2023 reader had yet to absorb.

The 2022–2024 governance reckoning has changed what limited partners are looking for. The cycle taught the working culture, expensively, what diligence neglected at allocation looks like at exit. The institutional reader of 2026 is more attentive to the gap between what the manager presents and what the working relationship will produce; less willing to delegate the diligence to the access; more interested in the methodology behind the evaluation than in the conclusion the methodology produces. The discipline of Soft Due Diligence answers the question the cycle has now made obligatory: what method are you applying, and how does the method survive its own pressure to compress?

Aran and Geslevich Packin’s 2025 Due Diligence Dilemma in the University of Illinois Law Review names the structural condition. Venture capital diligence has become a collective-action gatekeeping failure: speed wins access, verification loses time, each fund assumes the others have verified, the system aggregates reasonable individual decisions into systemic risk. The reading of an emerging fund manager in 2026 is in part the reading of the manager’s standing against that systemic failure. A manager whose diligence discipline is durable, articulated, and auditable is closing the gap the venture system has left open. That standing is now part of the manager’s commercial proposition, and part of the limited partner’s evaluation.

The agentic due diligence stack has matured at the same time, and the practical implication for emerging-fund-manager evaluation is direct. Tools available at production grade in 2026 ingest manager profiles, score thesis coherence, surface network signals, and produce structured assessments at scale. The institutional limited partner who uses the agentic stack alone will read every emerging fund through the same algorithmic frame. The institutional limited partner who pairs the agentic stack with the Soft Due Diligence discipline will read the emerging fund through both registers and notice the cases where the algorithmic reading misses the working evidence. Soft Due Diligence is the human governance layer that gives algorithmic pattern-recognition a methodology to be accountable to; the discipline applied to emerging fund managers is the most concrete instance of the layer at work.

The reading process

A short discipline at the close.

Soft Due Diligence is performed throughout the evaluation period and at every working opportunity. Venture capital is a social industry; the reading happens in the formal meetings and the dinners alike, in the prepared presentations and in the unprepared conversations. The discipline is to use both registers and to register what each is producing.

Ask open questions and listen. The 80/20 rule of the practised investor (twenty per cent talking, eighty per cent listening) is the working geometry of the reading. The information arrives in the manager’s elaboration of the open question, where the documented answer would arrive only as documented.

Pay attention to the second self. The dissonance signal is the data the rational analysis has yet to catch up with. The discipline of treating the unease as evidence is what the Soft Due Diligence reading actually is.

Find an opportunity to work with the manager before committing. Emerging managers who are willing to collaborate on a piece of pre-commitment work (a co-authored paper, a shared diligence on an adjacent investment, a structured conversation with a portfolio founder) are signalling the working register that will define the fund’s working life. The signalling is voluntary and read accordingly.

Write the reading down. The institutional limited partner who completes the evaluation in the head alone has made an investment decision the institution cannot audit. The discipline of articulating the framework, the weights, and the surprises is the discipline that converts the individual reading into an institutional position.

The structural case for emerging managers stands. The discipline of allocating to them well is the work that determines whether the structural case becomes a working portfolio. Soft Due Diligence, applied with the rigour the 2026 environment demands, is the methodology the discipline rests on.

The next article in the series examines specific reading patterns under the 2026 conditions, and the working methodology that allocators are building to operate them at institutional scale.

Sources: Härtlein, R. K. (2023). Soft Due Diligence in the Venture Capital Investment Process: A Process Model for Venture Capitalist’s Narrative Sensemaking. MBA thesis, TUM School of Management. Aran, Y. & Geslevich Packin, N. (2025). The Due Diligence Dilemma. University of Illinois Law Review. Originally published 26 July 2023 on softduediligence.com under the title How to Evaluate an Emerging Fund Manager. Revised and republished under Saint Clair editorial, 2026, with the structural Q&A architecture restored to flowing institutional prose, the Business Success / Investment Success framework and the onion-skin model named explicitly as Saint Clair-original methodology, and a new section reflecting the post-cycle conditions and the Aran–Packin gatekeeping reframing.

Disclaimer: This article is for informational purposes only and does not constitute investment or business advice. All decisions should be made based on independent research and consultation with qualified advisors.

About Saint Clair — Advisory & Capital: Saint Clair designs and builds cross-border capital infrastructure between Europe and Asia — proposing access where access is scarce, and creating structure where structure is absent. We guide Asian technology companies through European market entry, partnership development, and cross-border expansion. Since 2016.

Learn more: saintclair.sg | Contact: contact@saintclair.sg

The first article in this series examined the qualitative case for investing in young venture funds. The case is real; what remains to settle is the magnitude of the rewards and the calibration of the risks.

This article gathers the quantitative insights we have collected in our research. The collection makes no claim to be exhaustive, and some of the data is beginning to look its age, but venture capital takes a long view and the underlying trend is discernible.

Who is an Emerging Fund Manager?

The definition of an Emerging Fund Manager varies across sources. Parameters are generally some combination of years of activity, number of funds raised, and fund size.

Pitchbook sets the bar at fewer than four funds raised. Other working definitions reach for vaguer criteria, such as “newly formed” or “relatively small”, leaving the spectrum open.

The difference in available track-record between a VC raising Fund I and one already benefitting from the experience of two or three prior funds is obvious. The harder case is the experienced spin-off GP from a mature platform raising his first solo fund alongside a relatively recent venture capitalist raising Fund II or III. The numerical bar tends to flatten the substance of either.

In our reading, the answer comes down to context. “Emerging” is a working decision criterion held by the people the manager interacts with, in particular prospective LPs. The label is what each LP makes of it, calibrated to that LP’s own portfolio constraints and ambitions.

An LP works with a focussed investment approach and a working risk-mitigation strategy. Part of that is a set of criteria that draws boundaries between funds the allocation is open to and funds it is closed to. The criteria above will (or should) appear in the set, calibrated to the individual portfolio’s requirements and objectives.

Our own working definition is entrepreneurial rather than numerical. We consider Emerging fund managers those whose activity includes an element of exploration — a working quest to push boundaries. The boundaries may be the manager’s own (the venture capitalist starting out in the industry) or the industry’s (an investment thesis with a characteristic angle in sector focus, geography, or demographic).

The other “Emerging”

A second sense of “Emerging” runs through the literature: emergence by origin or diversity.

The venture capital industry has long been dominated by a homogeneous demographic. To oversimplify intentionally, by “white western males” from broadly similar cultural and academic backgrounds.

The side effect runs through similarity bias in venture financing. In their academic research, Franke et al. found that VCs assess founders with similar social and educational backgrounds more favourably [1]. Murnieks et al. produced converging evidence: VC fund managers prefer founders who think like themselves [2].

Female-led venture capital funds give the sharpest example. According to Pioneerspost [3], 90 per cent of female-managed funds had to be considered “Emerging” in 2021, on the criterion of managing their first or second fund at less than USD 100 million (see also the underlying study Women in VC [4]).

(Source Study “Women in VC”)

Beyond venture capital, the same article cites a study finding that only 1.4 per cent of US-based financial assets are managed by diverse-owned firms [5].

(Source: KNIGHT DIVERSITY OF ASSET MANAGERS RESEARCH SERIES: INDUSTRY)

Emerging Fund Performance

The performance picture, read against the structural framing above, gives the LP a positive case for Emerging Managers.

Pitchbook’s Q1 2021 Benchmarks Report finds that First Time Funds (FTF) significantly outperform “higher-numbered” funds while presenting a lower downside risk [6].

(Source: PitchBook, 2021)

The pattern appears consistent. A 2016 Preqin report states that "first-time funds have outperformed funds of established managers in every year except one (2004) over the past thirteen years" [7]. The data is seven years old at the time of writing, but venture capital operates on a long horizon where the underlying internal dynamics tend to hold.

An updated edition of the Preqin study, capturing the macroeconomic shifts since, would be welcome reading. A 2023 study by Vauban [8] cites a Venture Capital Journal survey on LP willingness to invest in first-time managers.

The 2023 picture is mixed. More LPs say it is “less likely” they will invest in first-time managers; fewer LPs exclude it completely; and the combined proportion responding “more likely” or “just as likely” is larger than in previous years.

The asset-allocation dynamics confirm the cooling. Axios reports that 62 per cent of capital has gone to 6 per cent of funds, and that in Q3 alone, 86.7 per cent of the money was committed to just 66 funds [9].

The shifts in global economics over the past twelve to twenty-four months, and the rise of the risk-free rate in particular, have left venture capital in choppier waters. A future article in this series will examine the particular challenges of being an Emerging Manager under the present conditions.

The Contribution of Emerging Managers

Emerging Managers’ contribution to the industry as a whole is substantive.

According to Cambridge Associates [10], Emerging Managers account for 72 per cent of the top-returning firms between 2004 and 2016, while receiving a smaller share of allocated capital than the more mature firms.

The same source consistently places first-time and emerging funds among the top ten performers across that period. The Vauban study cited above ranks them among the top five performers for vintages from 2004 to 2020.

On deal value created, Axios — drawing on Pitchbook data — confirms that emerging venture capital firms contribute substantially to industry value: consistently at least 25 per cent over the ten years to 2022, and approaching 50 per cent in the peak year of 2017.

Emerging Manager’s future?

The statistical case for investing in Emerging Managers holds, with the usual caveat that source selection carries biases. The reading is consistent with a wider view: Emerging Managers have a meaningful role to play in the risk-reward calculus of venture capital.

Becoming an Emerging Manager and earning credibility as a target for institutional allocation is hard work. The data, however, supplies a counterweight to the assumption that only the track record and experience of mature VC firms can promise value for LPs.

LPs may want to read Emerging Managers more favourably for the outsize returns they appear to generate. In current conditions, where allocation to VC funds is being penalised by more compelling alternatives and a low risk-free rate, an emerging fund is worth a closer look.

Emerging Managers graduate. The working goal is to graduate out of the category and build a successful track record. For LPs, building a portfolio of Emerging Managers is also building a pipeline of future, and one day access-restricted, high-performing VC funds.

As Rainer Braun, Professor of Entrepreneurial Finance at my alma mater TU Munich and co-founder of the venture fund-of-funds Equation, has put it: the successful unicorn hunters are the ones that invested at seed stage.

The next article in the series turns to the criteria and best practices LPs use to evaluate emerging fund managers, and the role of Soft Due Diligence in the process.

References

[1] Franke, N., Gruber, M., Harhoff, D., & Henkel, J. (2006). What you are is what you like — similarity biases in venture capitalists’ evaluations of start-up teams. Journal of Business Venturing, 21(6), 802–826.

[2] Murnieks, C. Y., Haynie, J. M., Wiltbank, R. E., & Harting, T. (2011). ‘I like how you think’: similarity as an interaction bias in the investor–entrepreneur dyad. Journal of Management Studies, 48(7), 1533–1561. https://doi.org/10.1111/j.1467-6486.2010.00992.x

[3] Pioneerspost (2023). Emerging and diverse fund managers outperform — here are five reasons why. https://www.pioneerspost.com/news-views/20230125/opinion-emerging-and-diverse-fund-managers-outperform-here-are-five-reasons-why

[4] Women in VC (2021). The Untapped Potential of Women-Led Funds. https://assets.ctfassets.net/jh572x5wd4r0/7qRourAWPj0U9R7MN5nWgy/711a6d8344bcd4fbe0f1a6dcf766a3c0/WVC_Report_-_The_Untapped_Potential_of_Women-Led_Funds.pdf

[5] Knight Foundation (2021). Knight Diversity of Asset Managers Research Series: Industry. https://knightfoundation.org/wp-content/uploads/2021/12/KDAM_Industry_2021.pdf

[6] Pitchbook (2021). Q1 2021 Benchmarks Webinar Deck. https://files.pitchbook.com/website/files/pdf/Q1_2021_Benchmarks_Webinar_Deck.pdf

[7] Preqin (November 2016). Special Report: Making the Case for First-Time Funds. http://docs.preqin.com/reports/Preqin-Special-Report-Making-the-Case-for-First-Time-Funds-November-2016.pdf

[8] Vauban (2023). LP for Emerging Fund Managers. https://vauban.io/post/lp-for-emerging-fund-managers

[9] Axios Pro Rata (2022). https://www.axios.com/newsletters/axios-pro-rata-083a5f20-d970-4827-8870-ddd46338e29c.html

[10] Cambridge Associates. Venture Capital Positively Disrupts Intergenerational Investing. https://www.cambridgeassociates.com/insight/venture-capital-positively-disrupts-intergenerational-investing/

Sources: References as numbered citations above. Originally published 17 July 2023 on softduediligence.com. Revised under Saint Clair editorial, 2026; the 2026 longitudinal update is published as a companion piece — Emerging Managers in Numbers, Three Years On.

Disclaimer: This article is for informational purposes only and does not constitute investment or business advice. All decisions should be made based on independent research and consultation with qualified advisors.

About Saint Clair — Advisory & Capital: Saint Clair designs and builds cross-border capital infrastructure between Europe and Asia — proposing access where access is scarce, and creating structure where structure is absent. We guide Asian technology companies through European market entry, partnership development, and cross-border expansion. Since 2016.

Learn more: saintclair.sg | Contact: contact@saintclair.sg

Saint Clair · Soft Due Diligence | June 2023

A venture capital portfolio constructed at the institutional level requires a balance the working language tends to obscure. Established managers carry stability, longer track record, and a known performance profile. Emerging managers (the new entrants, often in their first or second fund) carry the potential for outsize returns, exposure to the next vintage of industry leaders, and access to deal-flow the established firms have yet to reach. The institutional portfolio holds both.

This article opens a series on emerging fund managers and the discipline of evaluating them. The case for inclusion is structural; the discipline of selection is methodological; and the Soft Due Diligence reading is what turns the structural case into a working allocation.

What emerging means

Venture capital is, in the long view, a young industry. Most firms active today began as emerging firms within the last fifteen to twenty years. Emerging managers reach the position from several origins: spin-offs from established VC platforms, operators graduating from successful start-ups, founders turned investors, ecosystem professionals from incubators, accelerators, and adjacent institutions. The variety is the asset. Emerging managers are a stage in the institutional life cycle of a fund — a temporary condition the successful manager graduates out of.

The structural marker is the absence of track record at the manager level. The first-time fund builds trust in the relationship register; the established firm builds trust in the performance register. The first capital usually comes from high-net-worth individuals, family offices, and foundations within an existing relationship network. Institutional capital follows when the trust has been earned, and the trust is earned by the discipline of the working relationship as much as by the selection of the early portfolio.

The structural case

Emerging managers carry several characteristics that mature firms struggle to replicate.

Concentration of motivation. The first-time manager has every incentive to perform. The career thesis depends on Fund I returning enough to justify Fund II; nobody wants to be considered emerging longer than necessary. The motivation produces a kind of focus that mature firms, with longer cost structures and broader concerns, struggle to match.

Operational simplicity. A small fund is structurally a different organisation from an established platform. Decision rhythms are faster. Administrative overhead is lower. Investment thesis tends to be sharper because it has to be. A small fund cannot diversify its way out of a thesis miscalibration. The discipline that emerges is the kind of focus the limited partner is paying for.

Stage discipline. Most emerging funds operate at pre-seed and seed, with smaller ticket sizes and faster deployment. The earlier the stage, the more soft factors carry the diligence; the working register of the emerging manager’s evaluation is therefore exactly the register the manager is asking to be evaluated in. There is symmetry here that allocators sometimes miss.

Thesis sharpness. The constraint of a small fund forces a sharper investment thesis. The thesis is more often anchored in the manager’s own history (domain expertise, geography, demographic, sector) than in a general claim about market opportunity. The personal alignment between manager and thesis is the part of the structural case that holds hardest at scale.

Performance evidence. The data is consistent across multiple sources. Cambridge Associates’ work on intergenerational venture investing places emerging and first-time funds in the top performance bracket across long time horizons. Pitchbook benchmarks have shown first-time funds outperforming higher-numbered funds with lower downside risk. Preqin’s longitudinal work documents first-time fund outperformance over more than a decade. The aggregate signal has favoured the structurally complete allocation.

What the 2022–2024 cycle did

The 2023 articulation of this case stood on a rising tide. Capital was flowing; first-time funds were closing; the structural argument and the cyclical argument pointed the same direction.

The cycle since has been less generous; the test the cycle ran has confirmed the structural case.

LP commitments concentrated severely. Industry data through 2023 and 2024 documented capital flowing disproportionately to large established platforms, with first-time and emerging funds taking a smaller share than at any point in the prior decade. The behavioural reading is straightforward: when interest-rate normalisation made the alternatives look more attractive, allocators retreated to the names they knew. The retreat was a flight to brand recognition under pressure — an institutional reflex toward the established under cyclical stress, the structural case for emerging managers untouched.

The 2025 academic work has begun to surface what the cycle obscured. Fu and Taylor’s NBER working paper on first-time fund performance, published in 2025, examined a longer dataset than the prior consensus and found that the first-time outperformance signal is more durable than the cyclical retreat suggested. The cycle interrupted the working language in which the structural case was being made; the structural case itself stood unchallenged.

The institutional reading from 2026 is the more disciplined one. Emerging managers are a structural component of a balanced portfolio, and the discipline of evaluating them determines whether the structural component performs. The discipline is Soft Due Diligence, applied with the rigour the cycle has now made obligatory.

The pipeline argument

A separate argument for inclusion: emerging managers graduate. The performing first-time fund becomes the courted second-time fund, then the access-restricted third. By the time a manager has graduated, the institutional limited partner who supported Fund I is in the position of having been the early supporter, with the privileges that position carries. The portfolio of emerging managers built in 2026 is, in part, the access portfolio of 2030.

The cycle has, if anything, sharpened this argument. The flight to established names has thinned the field of emerging managers raising successfully; those who do close are by selection a more disciplined cohort. The 2026 vintage of first-time funds is harder to underwrite, and the underwriting that succeeds is more likely to compound.

The discipline ahead

This article is the first in a series on emerging fund managers and the methodology of their evaluation. The next pieces look at the performance data in detail, examine the criteria limited partners use, and should use, to evaluate emerging managers, and articulate the Soft Due Diligence framework that converts the structural case into a working allocation.

The structural case for emerging managers stands. The discipline of allocating to them, in 2026 conditions and forward, is the work the series is for.

Sources: Cambridge Associates, Venture Capital Positively Disrupts Intergenerational Investing. Pitchbook, Q1 2021 Benchmarks Webinar Deck. Preqin (November 2016), Special Report: Making the Case for First-Time Funds. Fu, X. (Jack) & Taylor, L. A. (May 2025). Due Diligence and the Allocation of Venture Capital. NBER Working Paper 33987. Originally published 28 June 2023 on softduediligence.com. Revised and republished under Saint Clair editorial, 2026, with a 2026 sidebar reflecting the post-cycle landscape and the Fu and Taylor 2025 NBER finding.

Disclaimer: This article is for informational purposes only and does not constitute investment or business advice. All decisions should be made based on independent research and consultation with qualified advisors.

About Saint Clair — Advisory & Capital: Saint Clair designs and builds cross-border capital infrastructure between Europe and Asia — proposing access where access is scarce, and creating structure where structure is absent. We guide Asian technology companies through European market entry, partnership development, and cross-border expansion. Since 2016.

Learn more: saintclair.sg | Contact: contact@saintclair.sg

In any business partnership, due diligence carries the weight of the decision. Financial diligence reads the numbers; legal diligence reads the agreements. Cultural diligence reads the working register, the alignment of values, the geometry of how two organisations meet. The gap between the diligence the working culture takes for granted and the diligence the working culture needs is where cultural fit lives — and where Soft Due Diligence is the discipline that reads it.

Cultural fit is the alignment of values, beliefs, working norms, decision rhythms, and unspoken expectations between two organisations. The cap table and the shareholder agreement codify the deal; cultural fit determines whether those instruments will be honoured in working practice.

The reading is mandatory at the institutional level. It is most acute where two organisations move toward the closest forms of working association — joint ventures, mergers, acquisitions, strategic platform partnerships, fund-and-LP relationships that will run for a decade or more. The tighter the integration, the higher the load that cultural fit carries. A loose commercial agreement can survive a cultural mismatch; a permanent integration cannot.

The reading itself

Reading cultural fit means holding four registers together.

Values and mission. The two organisations meet, in part, at the level of what they are for. Where the underlying purpose aligns, working friction reduces; where the underlying purpose diverges, every operational decision becomes a re-litigation. The reading begins by surfacing the mission of each organisation in language each side recognises, and then asking whether the languages translate.

Decision architecture. Hierarchy or distribution, speed or consensus, documentation or understanding — three dimensions where two organisations align or diverge. Two organisations may agree on outcomes and disagree, fundamentally, on how outcomes are reached. The reading examines decision rhythms: what gets escalated, what gets debated, what gets recorded. Decision architecture is the operational shape of the working culture; an alignment of values without an alignment of decision architecture is the most common form of cultural mismatch in cross-border partnerships.

Team-level working culture. The level closest to the day-to-day. Teamwork conventions, work-life balance norms, risk appetite at execution level, the standing of disagreement as a contribution. The reading at this level is the one most easily missed in formal diligence and most consistently the one that determines whether the integration converts into productive collaboration or into political contest.

Diversity and inclusion. The reading goes beyond demographic alignment, examining whether each organisation has built, in practice, a working environment where contribution is heard regardless of its source. This is partly a values reading, partly an operational reading, partly a track-record reading.

What cultural fit produces

Strong cultural fit produces practical operating benefits. Aligned working norms shorten the path from idea to decision. Shared values reduce the friction of weekly governance. Compatible decision architectures mean the same agenda item gets resolved by the same protocol on both sides of the partnership. Long-term commitments survive the inevitable difficult periods because the relational fabric is intact under stress.

The cost of neglecting cultural fit is also practical. Mismatched communication styles produce delay; mismatched decision architectures produce escalation cycles; mismatched team cultures produce disengagement, turnover, and the slow corrosion of the integration’s premise. The most expensive failures are the ones where the cultural mismatch was visible to one side and not the other; where the diligence work that would have surfaced it was either uncommissioned or unheard.

The cross-border context

Cultural fit becomes acute when the partnership crosses borders. Cross-cultural distance compounds organisational-cultural distance: two organisations that would have integrated cleanly in a shared market may struggle in a partnership that runs across legal systems, language registers, governance norms, and time zones. The reading discipline carries more weight in cross-border partnerships; the cognitive frames the practised reader applies have to translate as well.

This is the territory in which Soft Due Diligence has its sharpest application. A practised reader holds the partnership against the four registers above, alongside the underlying commercial logic, and asks whether the integration can produce its commercial outcome under the cultural conditions both sides actually live in. The reading holds both cultures at their working register. It tests whether the integration can survive on terms each side recognises. It surfaces the working assumptions each side has yet to articulate, and tests whether those assumptions are compatible.

The institutional reading

Cultural fit, read well, is a discipline an institutional body can teach, audit, and pass on. The reading rests on a method that produces an output another reader can interrogate. The institutional reader brings the method; the method makes the reading auditable. That is the standard institutional capital deserves and the discipline Soft Due Diligence brings to the working culture of partnership formation.

Where the reading is performed early, partnerships build on a foundation that holds across the working friction of the years that follow. Where the reading is skipped, the cost arrives later, and arrives in a form only cultural diligence could have anticipated.

The discipline is to read at the start.

Sources: Originally published 15 May 2023 on softduediligence.com under the title The Vital Role of Cultural Fit in Soft Due Diligence. Revised and republished under Saint Clair editorial, 2026.

Disclaimer: This article is for informational purposes only and does not constitute investment or business advice. All decisions should be made based on independent research and consultation with qualified advisors.

About Saint Clair — Advisory & Capital: Saint Clair designs and builds cross-border capital infrastructure between Europe and Asia — proposing access where access is scarce, and creating structure where structure is absent. We guide Asian technology companies through European market entry, partnership development, and cross-border expansion. Since 2016.

Learn more: saintclair.sg | Contact: contact@saintclair.sg