Friday Letter: Here’s why some emerging managers are having a tough go

First-timer fund managers are having a tough time in the US, while megafunds are raking it in.

It’s that time of the year when we take a look at the first half numbers for venture activity, double it, and say that’s what the year will end up as.

Of course, we all know that’s not true. The second half doesn’t always mirror the first. And this year in particular – with a pandemic, an economic recession, the uncertainty surrounding an election and nearly 40 million new unemployment claims in the US since March – is definitely a toss up to figure out.

However, we can still glean a few things.

This past week, our reporter Rebecca Szkutak delved into the H1 data and unearthed a few gems. First off, US venture fundraising is robust. Through the first six months of the year, 148 US venture funds have collectively raised nearly $43 billion, according to PitchBook and the National Venture Capital Association. Megafunds have a lot to do with the surge, as the top 15 funds accounted for half of the capital collected so far this year.

Secondly, Szkutak reported that growth deals are also up, which is unexpected to some, given the general pause we’ve seen in the exit market since the lockdowns went into place. But late-stage companies have been looking to top off with additional capital during the pandemic. Plus, we’ve seen an increase in megadeals and new growth-oriented funds to supply all the dry powder to companies looking to maintain projections.

Meanwhile, I’m taking a deep dive into the data when it comes to emerging managers. Here in the US, first-timers have not had an easy go of it so far in 2020. PitchBook and the NVCA found only 14 first-time funds combined to hold $1.5 billion in final closings in the first half. If the pace continues, the venture community is on track to see the lowest year for first-timers since 2015.

And that’s interesting when compared alongside how megafunds are driving the overall US fundraising activity. That should come as no surprise. It’s always been a lot harder for newer funds, especially now as many microVCs have no established relationships with LPs and are having to pause their fundraising activities. As Samir Kaji, a senior managing director at First Republic Bank, has told me, most new emerging managers will have to extend their timelines out by 12 months or more because of the slowdown and coronavirus concerns.

As one emerging manager said to me this week, when he compared megafunds to the woes of emerging managers: “In a world today with everything going on and LPs are not comfortable writing new checks for a fund manager they haven’t met, re-ups are a lot easier to stomach.”

Still, not all is bleak for first-timers. Peloton backer Lee Fixel raised $1.2 billion for his new fund Addition. That fund closed on July 1. So already, the numbers from PitchBook/NVCA on first-timers has nearly doubled. Maybe the second half will look up for emerging managers.

Let me know what you think, whether you’re a GP or an LP, tell me your thoughts on emerging managers and the climate for raising new venture funds. You can reach me at agoldfisher@buyoutsinsider.com and I’m open to voice and video calls.