Investing In Emerging Managers
Saturday, March 20, 2010 at 11:37AM
AV in Venture Capital, emerging managers, investment

Limited partner interest in “emerging managers” has grown impressively over the past decade. Many pension plans have programs targeting emerging managers or have made substantial efforts to increase their exposure to funds run by emerging managers in their venture capital/private equity portfolios. The definition of an emerging usually varies slightly for everyone, but in general, it usually refers to:

In a time where funds are hard enough to raise for established venture firms with good track records, how can emerging managers compete? Why would anyone invest in them? First, here are some drawbacks associated with emerging managers:

That said, emerging managers do feature characteristics which make them attractive, and in some cases even more attractive than established firms:

Manager selection is extremely important when investing in emerging managers. Understanding team dynamics, having a sense of their infrastructure, and the principals’ ability to run a firm are all factors that have heightened importance when evaluating emerging mangers. If the right group with the right backgrounds is coming together pursuing the right strategy the results could be impressive. Take for example Spark Capital, the firm was formed by Todd Dagres, formerly of Battery Ventures, and Santo Politi formerly of Charles River Ventures to pursue investments at the intersection of media and information technology. They’ve been early investors in great companies such as Twitter, Boxee, and Tumblr. A larger more established group may not have taken the risk to invest solely in such a narrow focus, but Spark’s nimbleness allowed it to identify and pursue companies in this exploding space. Investors would be foolish not to at least give emerging managers a fair shake when considering investments in venture funds, but they must be extremely prudent in their evaluation of managers because for every Spark, there is a firm that doesn’t make it.

Article originally appeared on Venture Examiner (
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