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1839 Ventures Insights
A Research Series for Family Offices
Selecting Venture Managers
Article 16
Key Takeaways
- A shorter fund history does not mean the investment process is immature.
- Experienced LPs evaluate sourcing, judgment, portfolio construction, alignment, and organizational durability alongside performance.
- Emerging managers may benefit from focus, smaller fund size, and closer proximity to founders. Managers must demonstrate those advantages rather than ask LPs to assume them.
- Operational infrastructure and transparency matter because investors are underwriting a long-term partnership, not only an investment thesis.
“Why emerging managers can deserve serious consideration even when their institutional track records are still developing.”
The Emerging Manager Question
Family offices evaluating venture funds often struggle with how to assess a manager when the firm has a limited institutional track record. The easiest method is to focus on realized performance. Venture funds take years to develop. Relying solely on past returns may cause investors to miss the skills that make a strategy repeatable.
Investors should not apply less rigorous due diligence to an emerging manager. In fact, they often need to do the opposite. Investors should distinguish the firm’s age from the experience of its decisionmakers. They should then evaluate how sourcing, underwriting, portfolio construction, governance, reporting, and follow-on decisions relate.
Start With the People, Then Test the Process
A good starting point is attribution. Identify which investments, roles, sector links, or decisions the team can credibly claim. Clarify where the judgment originated and what the manager actively managed. This distinction matters. A previous firm’s brand or overall success record might not fully reflect the decision-making process of those creating a new strategy.
Next, focus on repeatability. An effective manager should explain what enters the investment pipeline and what the team rejects quickly. The manager should also define what advances to diligence, who challenges assumptions, and what evidence the team requires before funding. Robust processes do not remove uncertainty, but they make it explicit and promote consistent assessment methods.
Family offices can make attribution more concrete by asking the manager to walk through several prior investments from beginning to end. Who first identified the company? Who led the diligence? Which assumptions shaped the decision? Who influenced follow-on capital, governance, or an eventual exit? Detailed answers help distinguish genuine investment responsibility from participation around the edges of a successful transaction. They also reveal how the manager thinks when evidence changes after the initial check.
Use References to Test Attribution
References can test those answers. Former colleagues, founders, co-investors, service providers, and portfolio executives often see different parts of a manager’s behavior. A useful reference process asks not only whether the individual performed well, but how they handled disagreement, uncertainty, missed expectations, and difficult communication. Those situations often reveal judgment more clearly than a list of successful investments.
Focus Can Be an Advantage
Smaller and emerging venture managers often operate with narrower mandates, lower ownership thresholds, and greater adaptability compared to larger platforms. This allows them to access investment opportunities that might be too small for bigger funds. Additionally, managers can concentrate on specific stages, sectors, or ecosystems where they have strong ties.
However, LPs should not assume these characteristics create advantages. They need to evaluate whether a manager’s size and focus genuinely improve its ability to source and select investments or describe the strategy.
Institutional Quality Still Matters
An emerging investment firm does not need the infrastructure of a large platform. However, it does require tailored support for its strategy. Before making investments, the manager should establish fund administration, legal and compliance services, valuation methods, reporting, cybersecurity, conflict resolution, and decision-making authority.
This is particularly vital for family offices, as their relationship with the manager can last for a decade or more. The crucial question goes beyond whether the manager can raise and deploy initial funds. LPs also need to know whether the organization can manage capital responsibly through different market conditions.
Institutional readiness also includes knowing where responsibility sits. Family offices should understand who controls investment decisions and cash movements. They should also know who approves valuations, documents conflicts, and steps in if a key person becomes unavailable. An emerging manager may outsource administration, accounting, compliance, or cybersecurity support, but outsourcing a function does not outsource accountability. The manager still needs to understand the process, supervise providers, and communicate clearly with LPs.
Treat Reporting as an Early Operating Test
Reporting quality offers an early test of that discipline. Clear capital-account information, portfolio updates, valuation explanations, and candid descriptions of company challenges help LPs assess the manager. They also show how the manager may behave over a long holding period. A sophisticated reporting package does not make an investment strategy better. However, consistent reporting can show that the organization treats stewardship as seriously as sourcing.
What Experienced LPs Are Really Underwriting
When an LP commits to an emerging manager, their assessment extends beyond the current portfolio. They evaluate whether the manager can build a sustainable investment organization. They look for durable sourcing, disciplined decisions, talent retention, candid communication, and operational strength.
That is why due diligence on emerging managers tends to be thorough. While a clear investment thesis shows where a manager intends to invest, experienced LPs also want to understand the basis of their competitive edge. This advantage could come from prior investing, operating experience, or strong sector ties. It could also come from ecosystem access or an ability to identify promising companies early. The closer the connection between the manager’s background and their strategy, the easier it is to evaluate the credibility and consistency of their edge.
Fund Size Can Reveal Strategic Discipline
Fund size often does not receive enough attention. A manager who raises more capital than the opportunity set supports may need larger checks or later-stage investments. It may also increase concentration or push the fund beyond its expertise. Conversely, a carefully sized fund helps maintain the economics of smaller investments and lets the manager focus on market segments they understand best.
Family offices should understand how the manager chose the target fund size. The size should align with portfolio count, check size, ownership goals, reserves, deployment pace, and available opportunities. Fund size is not just about fundraising; it is a crucial element of the investment strategy.
Translate Fund Size Into Portfolio Math
Fund construction can make this assessment more concrete. A manager should show how the target fund size translates into portfolio construction. That includes initial investments, average check sizes, follow-on reserves, and concentration limits. Those assumptions should fit the actual companies available within the strategy. Portfolio math may reveal an oversized fund. If the strategy requires unusually large allocations, unrealistic deployment, or investments outside the mandate, the opportunity set may not support the fund.
LPs should also consider the economics of the management company. An emerging firm needs enough resources to support diligence, administration, and reporting. Portfolio work should not allow management fees to become the primary economic objective. The goal is not to minimize infrastructure. It is to preserve organizational durability without weakening the investment discipline that made the strategy attractive.
Alignment Becomes Especially Important
Emerging managers often rely heavily on the success of an early fund to establish their reputation and build future franchise value. While this can create alignment, LPs should carefully analyze the economics involved. Important factors include GP commitment, management fees, carried interest, outside business activities, key-person protections, and co-investment rules, which all reveal incentive structures. Achieving ideal alignment involves both behavioral and contractual aspects.
Investors should favor managers who share bad news as openly as good news. They should maintain underwriting standards in competitive markets and protect portfolio quality, even when that slows deployment. Although these traits are difficult to measure with spreadsheets, they often become vital over a long-term, decade-long partnership.
Family offices should also examine how incentives may change as the firm grows. A manager can begin with a focused strategy and later face pressure to raise a much larger successor fund. That pressure can broaden the mandate or accelerate deployment. LPs should ask what would cause the manager to preserve the original strategy and what would justify changing it. The strongest answer connects future growth to the size of the opportunity set rather than to fundraising ambition alone.
Article 16 – Evaluating Emerging Venture Managers – What Experienced LPs Look For
Figure 1. Experienced LPs evaluate emerging venture managers across multiple dimensions, looking beyond track record to assess repeatability, alignment, institutional readiness, and long-term durability.
A Practical LP Diligence Framework
Family offices can make emerging-manager diligence more rigorous by separating evidence into four categories: people, process, portfolio, and platform. The people category tests attribution, judgment, references, and decision-making authority. Process examines how the manager sources, screens, underwrites, approves, monitors, and follows investments. Portfolio analysis connects the stated strategy to position sizing, diversification, reserves, and pacing. Platform diligence then asks whether operations, compliance, reporting, service providers, and financial resources can support the strategy for the fund’s full life. This framework helps investors avoid overweighting a single attractive feature, such as a strong network or an impressive prior employer.
The most useful diligence process also distinguishes between evidence and aspiration. An emerging manager may describe a disciplined sourcing model. However, LPs should ask to see how that model has operated in practice. They can review prior investment memoranda, examples of declined opportunities, reference calls, portfolio monitoring materials, or historical pipeline data where appropriate. The objective is not to demand the infrastructure of a much larger institution. It is to determine whether the manager can show a consistent connection between what it says it does and what it has actually done.
Stress Test the Organization
Family offices should also test how the organization behaves under pressure. Ask how the manager would respond to slower fundraising or a key team departure. Also ask how it would handle emergency portfolio financing or a weaker follow-on market. These scenarios reveal priorities that standard diligence questions may not expose. A manager should be able to explain decision rights, communication protocols, reserve discipline, and contingency planning. Clear answers demonstrate a stronger understanding of the responsibilities that accompany long-duration capital.
Document the Investment Case
Finally, LPs should write down the specific reasons they believe the manager can succeed before committing. Those reasons might include differentiated sourcing, relevant operating experience, or disciplined portfolio construction. They may also include unusual ecosystem access or a credible ability to support founders. Stating the case clearly creates an investor-side decision record that LPs can revisit later. It also forces the family office to distinguish genuine evidence of an emerging advantage from enthusiasm about a new firm or a compelling narrative.
Looking Ahead
Evaluating emerging managers requires a broader perspective than assessing established franchises. LPs should evaluate performance alongside attribution, process, access, portfolio construction, alignment, and institutional readiness. The goal is not to assume emerging managers are inherently capable. It is to identify evidence of skill before a long institutional track record exists.
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