Mandate
It is well established that smaller and younger funds have, on average, produced stronger returns than large established ones. It is equally well established that they fail far more often. Both facts follow from the same cause, and an allocator who wants the first without a plan for the second is buying a lottery ticket rather than running a portfolio.
Why small can outperform
A manager running a fraction of their capacity can take positions that would be uneconomic at scale, exit without moving the market against themselves, and concentrate in their best ideas rather than diluting into their twentieth. They are also, usually, hungry: the founder's wealth is tied to the fund's success in a way it will not be once the management fee alone supports a comfortable life.
Survivorship bias inflates the measured effect, and we discount published figures accordingly. But the structural argument holds even after the discount, which is why early-stage allocation remains a deliberate part of our mandate rather than an opportunistic one.
Where early-stage funds actually fail
In our experience the investment strategy is rarely the proximate cause. Failures cluster around business economics — a firm that needs assets it cannot raise before its runway ends — and around operational gaps that became material when the portfolio grew. A third cause is behavioural: a manager under existential pressure to post a number takes risk they would not otherwise take.
Each of these is addressable. We look for an honest budget, a realistic runway, and a founder who has thought about what they will do if the second year is flat. We prefer managers whose personal financial situation does not force a bad decision in month eighteen.
How we structure early allocations
Early-stage capital is worth more to a manager than late capital, and the terms should reflect that. Depending on the situation we may agree founder fee terms, a capacity right that lets us scale as the strategy grows, enhanced transparency including position-level reporting, and in some cases a revenue-share arrangement in exchange for a larger and longer commitment.
We also think carefully about our proportion of the fund. Being ninety per cent of a manager's assets gives us influence but creates a dependency that damages the manager's ability to raise elsewhere and concentrates our own operational risk. Where we do take a large share, we prefer a managed account and an explicit plan for how the manager diversifies their investor base.
What we are looking for in a founder
A clear account of where they made money before and, crucially, whether that edge travels to a new firm without the previous employer's balance sheet, data or flow. A willingness to say what they are not good at. Evidence of having hired someone senior who will disagree with them. And a strategy whose capacity they have estimated conservatively rather than aspirationally.
The relationship before the allocation
We meet most emerging managers well before we invest, often before launch. We are happy to give a view on structure, terms and investor presentation without any expectation on either side. Managers occasionally find this odd; the logic is simply that the cost of the conversation is small and the value of knowing a manager for two years before writing a cheque is large.