How Emerging VCs Can Still Raise

By Alex Menn

Over the past few years, we’ve been witnessing a paradox in venture capital. Carta’s data shows that smaller VC firms have higher TVPI than larger funds of the same vintage. Yet, less money has gone to emerging funds, even as they continue to outperform established players.

Endowments, pensions and family offices claim they want exposure to innovation and risk, but in reality, their capital increasingly flows into the safest, largest franchises.

A tougher market for first-time funds

Bloomberg reports that first-time fund managers have raised only $1.1 billion in the current fundraising cycle, a fraction of what they raised just a few years ago. Carta’s 2024 Fund Performance report states that for funds in the $100 million to $250 million range, the median number of LPs fell to 47 in 2024, nearly half the level of two years earlier.

Even with a stellar team and returns surpassing Sequoia Capital’s, for most small funds, fundraising is no longer about projected IRR. It is about credibility and connection.

The first fund is about people, not performance

At an early stage, investors back the person, not the model. Sure, some may genuinely believe in you as a manager. But most will back you because they like being around you. Some like to talk about deep tech or discuss how you win deals. But many will just want to have a drink, play sports or be part of your circle.

I call it long-term entertainment, because investors stay close due to the environment you create. The question is how to deepen that connection and make it real.

Capital follows trust. Build trust, and you’ll have higher chances that the money shows up.

Familiarity still decides who gets funded

People still divide the world into “ours” and “theirs.” A Harvard–Stanford–Yale graduate who spent years at Goldman Sachs or Meta will hesitate to back 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 fear you, or learn to present yourself in a way they see you as an insider and belong to the same tribe. The goal is to be visible in the same spaces and speak the same cultural language, in order to build enough familiarity that the initial bias fades.

Look beyond traditional LPs

Most managers chase the same predictable investors. But while they are already flooded with decks, there’s more capital sitting where no one bothers to look.

Owners of sports teams are a good example. They’re used to losing millions each season chasing Champions League victories; the risk in a venture fund feels tame by comparison. Developers who’ve stopped building in Europe because the economy has stalled are also searching for new ways to deploy money.

And side note — don’t bother writing to the person who was the U.K.’s top taxpayer last year. By the time they make that list, you’re already too late.

It can be valuable to have an anchor, but choose wisely

Many first funds will end up with one dominant investor. This gives you stability and legitimacy. The key is why that investor comes in. The good ones invest because they want proximity to the team and trust your judgment. The bad ones invest because they want to influence where the money goes.

You’ll never make real returns under someone else’s steering. A strong anchor believes in your process and stays close for perspective, not control. Otherwise, you don’t have an ally. You have a boss.

Alex Menn is a partner at Begin Capital, a $120 million London-based venture capital fund backing tech founders in Europe and the U.S. Prior to moving into VC, he was a founder (exit in 2018) and spent more than 12 years in European private equity, where he was involved as an investor in over 50 deals worth $3.5 billion.

Illustration: Dom Guzman