Over the past few years, we have witnessed a paradox in the enterprise capital space. Carddata shows that smaller VC firms have higher TVPI than larger funds of the same vintage. However, less money has gone into emerging funds, though they continue to outperform established players.
Pension funds, endowments and family offices claim they need exposure to innovation and risk, but the reality is that their capital is increasingly flowing into the safest and largest franchises.
A harder market for start-up funds
Bloomberg reports that fund managers have raised for the first time just $1.1 billion in the current fundraising cycle, which is a fraction of what was raised just a few years ago. Cards Fund performance in 2024 the report states that funds range from $100 million to $250 million the median variety of LPs dropped to 47 in 2024i.e. almost half lower than two years earlier.
Even with an all-star team and unmatched returns Capital of SequoiaFor most small funds, fundraising is now not about projected IRR. It’s about credibility and connections.
The first fund is about people, not results
Early stage investors support the person, not the model. Sure, some people may really consider in you as a manager. But most will support you because they enjoy being around you. Some people like to talk about deep tech or discuss how to win trades. But many will just want to have a drink, play sports or be a part of your circle.
I call it long-term entertainment because investors stay close because of the environment you create. The query is how to deepen this bond and make it a reality.
Capital follows trust. Build trust and you will have a higher likelihood of cash coming your way.
Knowledge still determines who receives funding
People still divide the world into “ours” and “theirs”. AND Harvard–Stanford–Yale graduate who spent years in Goldman Sachs Or Meta will hesitate to support someone from a completely different background, even if that person is successful.
The solution to this barrier is to either stop fishing in ponds where the fish are afraid of you, or learn to present yourself in a way that makes them see you as an insider and a part of the same tribe. The goal is to be visible in the same spaces and speak the same cultural language to build enough familiarity for initial prejudices to disappear.
Go beyond traditional LPs
Most managers chase the same predictable investors. But while they’re already awash in decks, there’s more capital on the market where no one bothers looking.
Sports team owners are a good example. They are used to losing thousands and thousands each season in pursuit of Champions League victories; by comparison, the risk in a enterprise fund seems moderate. Developers who have stopped building in Europe due to economic stagnation are also looking for recent ways to use the money.
And warning – don’t trouble writing to the one that was the biggest taxpayer in the UK last 12 months. By the time they make this list, it should be too late.
Having an anchor can be priceless, but select correctly
Many early funds will have one dominant investor. This ensures stability and legitimacy. The key is why this investor comes. Good ones invest because they need to be close to the team and trust your judgment. Bad investors invest because they need to influence where the money goes.
You won’t ever make real profits under another person’s management. A powerful anchor believes in your process and stays close for perspective, not control. Otherwise you have no ally. You have a boss.