Embracing the Potential of Emerging Fund Managers
The new entrants in venture capital carry a structural case that the cycle has tested and the cycle has not closed.
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.
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