#354: Emerging Manager Expectations (from LPs)
Happy Thursday! Venture fundraising is improving. PitchBook projects 2026 fundraising to exceed last year, distributions have begun recovering, and some of the industry’s largest funds have returned to market. But that recovery has not been shared evenly. Capital remains concentrated among established firms, while first-time and emerging managers continue facing a much higher bar. Recent research from PitchBook, NVCA, Gen II, and Ocorian suggests the fundraising environment is improving, but LP expectations continue rising. More below!
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1️⃣ Fundraising Is Recovering, But Capital Remains Concentrated
What the data shows:
PitchBook expects fundraising to exceed 2025 levels, with $62.4B raised across 288 US venture funds through May.
Funds larger than $1B account for 71.9% of all capital raised year-to-date.
Established firms captured 90.9% of fundraising in Q1 2026.
Gen2 reports that emerging managers continue facing longer fundraising cycles and smaller average closes despite improving market conditions.
What this means:
The fundraising market has improved compared to the last two years, but most of the recovery has gone to established franchises. The challenge is no longer simply raising capital during a slow market. It is competing while LP commitments become increasingly concentrated.
2️⃣ Liquidity Still Drives LP Decision Making
What the data shows:
Venture distribution yields have recovered toward their long-term average after reaching multi-year lows.
PitchBook notes that LP contributions have exceeded distributions for four consecutive years.
Large IPOs may improve liquidity, but PitchBook expects capital recycling to take time rather than happen immediately.
What this means:
Many LPs remain focused on rebuilding liquidity. Even if fundraising improves, distributions still determine how much capital can be committed to new funds. Emerging managers are competing for a smaller pool of available commitments than headline fundraising numbers suggest.
3️⃣ LPs Are Still Increasing Private Market Allocations
What the data shows
Ocorian found that LPs expect to increase allocations across private markets over the next three years.
Private credit is expected to receive the largest increase, while venture and private equity remain core portfolio allocations.
Sixty-five percent of GPs expect stronger LP appetite during the coming year.
LPs are not reducing exposure to private markets.
Funds greater than $1 billion have accounted for 71.9% of total capital raised YTD, a significant increase from 34.2% in 2025 and 49% in 2024.
Top firms dominate fundraising.
Established firms captured a record 90.9% of capital in Q1.
Emerging managers continue to face the biggest challenges.
What this means:
LPs are not reducing exposure to private markets. Instead, they are becoming more selective about where new commitments go. That distinction matters. Demand for the asset class remains healthy even as manager selection becomes more competitive.
4️⃣ Due Diligence Is Extending Beyond Investment Returns
What the data shows
Ocorian’s 2026 survey suggests institutional investors continue placing greater emphasis on:
liquidity risk
governance
operational and manager risk
valuation discipline
transparency and reporting
Those expectations are also influencing how private capital firms invest in their own operating platforms. The survey also found:
What this means:
Operational infrastructure is increasingly becoming part of fundraising. LPs continue evaluating investment performance, but they also want confidence that managers can scale reporting, governance, compliance, and fund operations alongside portfolio growth.
5️⃣ Institutional Quality Is Raising The Bar
Gen2’s Emerging Managers Report highlights that successful first-time managers increasingly differentiate through:
institutional reporting
experienced operations teams
consistent LP communication
operational readiness throughout fundraising
PitchBook reaches a similar conclusion, noting that established firms continue attracting the majority of commitments as LPs concentrate capital.
What this means:
The gap between established and emerging managers is no longer explained only by track record. Institutional quality has become another factor LPs evaluate during manager selection. For many emerging firms, operational maturity now influences fundraising alongside investment performance.
Final Takeaways
Venture fundraising is recovering, but most new capital continues flowing to established firms.
LP liquidity has improved, though distributions remain below what many institutions need before expanding commitments.
LP allocations to private markets continue growing, but manager selection is becoming more concentrated.
Operational infrastructure, governance, and reporting increasingly influence fundraising decisions alongside investment returns.
Bottom Line: Venture fundraising is improving, but the rules are changing. LPs continue committing capital to private markets, yet they are concentrating commitments, asking tougher due diligence questions, and placing greater emphasis on operational maturity. For emerging managers, success increasingly depends on demonstrating not only an ability to source investments, but also the institutional platform to manage capital over multiple fund cycles.
Subscriber Toolkit: Building An Institutional Venture Firm
Today’s discussion focused on what LPs increasingly evaluate when selecting managers.
Paid subscribers can access the same templates and frameworks we use throughout these posts, including:
VC Fund Model
DPI Forecast & Premium Carry Template
Capital Call Forecast Model
VC Fund Budget Template
Year-End Finance & Compliance Checklist
Streamlined VC Fund Playbook
These resources help managers build the reporting, planning, and financial infrastructure increasingly expected by institutional LPs.
