Today, we bring you our perspectives on Emerging Managers in Venture Capital, and their position within the alternatives market. We are working with a growing number of them, and welcome the opportunity to support their journey, being investors and entrepreneurs ourselves.
In 2024, the VC landscape for emerging managers is both challenging and full of opportunity. Limited Partners (LPs) and family offices are becoming more selective, prioritizing managers with unique strategies and strong performance histories. According to PitchBook, there's been a 15% increase in LP allocations to alternatives like private credit and infrastructure, indicating a shift away from traditional VC.
Emerging managers, typically defined as those launching their first, second, or third fund, are also looking beyond traditional geographies for capital, with the Middle East gaining traction. Sovereign wealth funds from this region are actively diversifying their portfolios, making it a hot spot for fundraising. Leading players in this space include Mubadala and the Public Investment Fund (PIF) of Saudi Arabia, which are increasingly influential in global VC markets. Preqin reports that over 400 emerging managers are currently raising funds, collectively targeting approximately $50 billion in capital.
To stand out in this competitive environment, many managers are focusing on cause-based strategies. Funds that emphasize impact investing or are women-focused are particularly appealing, aligning with rising demand for ESG (Environmental, Social, Governance) investments. Preqin data supports this trend: ESG-focused funds have delivered 3-5% higher returns over the past five years (related: see Blue Haven Initiative). Notable names in this sector include Arlan Hamilton of Backstage Capital and the team at Rethink Impact, LP. We are also fans of the themes pursued by Jeremy Burton, Tim Connors, and team at Platform Venture Studio.
The prevalent themes among these funds are diverse, with significant attention on technology and innovation sectors like fintech, healthtech, and artificial intelligence. For instance, sectors like fintech and healthtech have seen a surge, with fintech investments growing by 20% year-over-year, according to CB Insights. This trend demonstrates a shift towards more purpose-driven investment strategies, aligning with the broader demand from LPs for socially responsible and impactful investments. Emerging managers today need to be innovative in their approach, showcasing robust performance while strategically targeting new geographic areas and adopting differentiated, purpose-driven strategies. This blend of innovation and strategic focus is crucial for success in the evolving venture capital market.
We continue to appreciate conversations with and insights from experienced practitioners and organizations like Broadhaven Capital Partners, Allocate, Michael Sidgmore, Samir Kaji, Andrew Ofori, David Weisburd, Michael Kim, and Karl Geisel.
