How to Evaluate an Emerging Manager Without a Track Record

It is August 2004, and the elevator opens onto 915 Broadway on an afternoon so hot that Manhattan seems to be running a few seconds behind itself.

Lindel Eakman steps into an office. He is 29 years old, an investment associate at UTIMCO, the organization managing billions of dollars for the University of Texas endowment system. He has only been there about a year, working across private investments, but venture capital has started to capture more of his attention lately. He has travelled to New York to meet two investors trying to raise their first fund for their newly formed firm. 

Outside, yellow cabs grind through traffic and heat rises off the pavement. The iPod is still a novelty at this time, and Gmail is only four months old. Facebook is a website for college students mainly, and Interpol and The Walkmen are providing the soundtrack to a New York that is beginning to feel interesting again.

It’s four years after the dot-com bubble burst, and despite a new wave of promising tech beginning to appear, many investors are still carrying the losses and the caution left behind by the crash. Needless to say, investors aren’t exactly jumping at the chance to back anything with a tech label or a URL at this time.

Yet here stand two men in front of Eakman in the office, asking him to commit a modest $25 million to the $125 million debut fund of their new firm, Union Square Ventures. This fund, they tell him, is betting on the next generation of internet companies.

This is quite the dilemma for Eakman.

Tech still being a touchy subject is one thing. It is another that there is essentially no Union Square Ventures track record for him to evaluate. Its founders, Fred Wilson and Brad Burnham, are experienced investors, but they have never run a fund together, and at this point they barely even have a firm.

At this point in time, Twitter does not exist yet. Neither do Etsy, Tumblr or Coinbase, or other companies that will eventually help make Union Square Ventures one of the most recognizable names in venture capital. 

Instead, they came to UTIMCO with an argument. The internet as an opportunity, they believe, has been massively misunderstood.

They recognized that while the crash did destroy thousands of companies, it did not remove the billion dollar infrastructure beneath it all. That was still usable as a foundation, and ready to be built upon for a lot cheaper now. This is what will enable the application layer of the internet.

It was a compelling thesis. But from Eakman’s side of the table, there was still a lot more work to do before writing a check. 

Without a previous fund to point to, there was no performance history to lean on. So what, exactly, was left to evaluate?

With hindsight, we know just how well Union Square Ventures’ first fund turned out. Public LP disclosures show that a $25 million commitment to USV’s 2004 fund ultimately generated roughly $307 million in distributions on $22.3 million invested. This means a 13.82x multiple and an IRR of about 67%.

Eakman, of course, did not have that hindsight and had to find what evidence was there to believe those returns might eventually follow. 

The question facing Eakman in that hot Manhattan office in 2004 is the same one LPs still face with emerging managers today:

How do you practice good emerging manager due diligence when there is no track record?

Why Back Emerging Managers?

For an LP, all of this raises a fair question. If evaluating an emerging manager requires more work and comes with more uncertainty, why not simply wait until they have a track record?

The simple answer is that because by then, the opportunity to do something genuinely unique may have passed.

Some of venture capital’s strongest funds do appear remarkably early in a manager’s life. In an analysis of its proprietary US venture capital database, Cambridge Associates ranked funds by net Total Value to Paid-In (TVPI) across vintage years and found that new and developing managers (Funds I through IV) consistently appeared among the 10 best-performing funds. Earlier Cambridge research reached much the same conclusion across multiple vintages, finding newer managers repeatedly represented near the top of US venture fund rankings.

The opportunity lies in gaining access to strong managers early, before a long track record makes them easier to identify and, in many cases, harder to access.

The challenge is that early access comes with less evidence. A 2026 study published in the Journal of Financial Economics, covering more than 61,000 institutional private-market commitments, found that LPs were quite willing to back first-time and younger managers, but those commitments did not produce better subsequent performance systematically.

In other words, simply getting in early is not enough. The value comes from identifying the managers who will go on to become strong performers before someone else finds them.

We looked at some of the characteristics that tend to distinguish those managers in our article “Emerging Managers Outperform Established Funds and Most LPs Are Missing.”

But recognizing those qualities becomes harder when there is little or no fund-level performance to test them against.

When fund-level performance does not exist, LPs have to underwrite the inputs instead: judgment, access, strategy, expertise, and portfolio construction.

These are the areas where evidence can still exist long before a conventional track record does.

1. Assess Investment Judgment

A first-time fund may not have a performance history, but the people running it may still have a history of making investment decisions. The first task for an LP is therefore to gather evidence about the manager’s investment judgment.

There is a good reason to focus on the individual. A study by Michael Ewens and Matthew Rhodes-Kropf tracked individual venture capitalists across investments and as they moved between firms. They found persistent differences in investment performance between partners working at the same VC firm and estimated that individual partner human capital was between 2 and 5 times more important than the organizational capital of the firm in explaining performance.

Therefore, the fact alone that someone worked at a well-known firm with an impressive portfolio is not enough to conclude that that specific person has good investment judgement. LPs need to dig further into what role the individual played exactly, whether that was sourcing, diligence, sitting on the board, or anything else that could have led to the success of the portfolio.

Investment selection, in particular, is considered the most important source of value creation in venture performance. 

For an emerging fund manager, an LP can reconstruct a decision history from whatever evidence exists about investments made at previous firms, angel or SPV investments, companies seriously considered but rejected, and opportunities the manager wanted to pursue but ultimately did not. Where possible, LPs can also ask for useful materials such as investment memoranda, diligence notes, IC papers, or other records produced during the decision-making process.

Attribution matters here. A manager presenting investments made at a previous firm should be able to explain which opportunities they sourced, which they advocated for, what role they played in the investment decision, and how involved they remained afterward. References from former colleagues, founders, and co-investors can help LPs distinguish genuine investment judgment from proximity to a successful portfolio.

The rejected investments can be revealing too. Asking about companies a manager seriously considered but ultimately passed on can show how consistently their stated investment criteria were actually applied, particularly when some of those companies later became successful.

LPs should also examine investments that performed poorly. For example, LPs can ask managers to provide examples of investments below 1.0x TVPI and explain what went wrong and what was learned.

In practice, the LP diligence should be focused on something more informative than just a list of successful companies. 

2. Verify Deal Access

A manager can have sound investment judgment and still struggle to produce returns if they have a hard time finding deals. It’s, therefore, important to see if the manager’s network produces a repeatable supply of investments that fit the fund’s strategy.

The average VC firm screens roughly 200 companies a year, only to make about 4 investments, according to a survey. The survey results showed that more than 30% of those opportunities typically come from professional networks, about 20% from other investors’ referrals, 8% through existing portfolio companies, and almost 30% are proactively generated by the VC itself. Only about 10% came from founders approaching the firm directly.

Those are the average numbers for VC firms, but an LP needs to gain a deeper understanding of an emerging manager’s pipeline.

ILPA’s standard Due Diligence Questionnaire suggests that managers are asked to describe how sourcing is conducted and documented. To go further, LPs could even request a deal-flow log showing the source of each opportunity and how far it progressed through the investment process.

For example, the following could be requested from emerging managers:

The warning signs are often visible in the same data. A large pipeline means little if few opportunities fit the strategy, if most depend on a single referral source, or if the manager repeatedly loses the deals it most wants to win. An emerging manager does not necessarily need enormous deal flow, but there should be evidence that its sourcing advantage is both relevant to the strategy and repeatable.

Working through the list can help examine the strength of the pipeline. One can receive 1000 inbound deals where 95% of startups don’t fall within the fund strategy, or 100 stronger deals that are exactly what the emerging manager needs to succeed.

3. Test the Investment Strategy

An emerging manager may have relevant experience and access to good deals, but an LP still needs to determine whether the opportunity is investable.

The first step is to see whether the manager can define it precisely. The ILPA Due Diligence Questionnaire suggests asking managers to specify the types of transactions they intend to pursue, including investment stage, sector, geography, pace and concentration, and to explain how the strategy was developed.

For an LP, these details establish what the manager is proposing to do.

Vague statements, such as “investing in transformative technology,” leave too much discretion to assess consistently. In contrast, a manager could say “seed-stage cybersecurity infrastructure companies in Europe,” which is a much more observable investment strategy.

The next step is to reduce the thesis to its underlying assumptions.

Most investment strategies depend on some claim about why an opportunity exists now. E.g., a change in regulation happened, or technology costs dropped. Such claims should be independently testable.

An LP evaluating the strategy could ask:

• What sort of change created this opportunity?
• What evidence shows that change is occurring?
• Which parts of the thesis are facts and which remain assumptions?
• Which companies or business models fall within and outside the strategy?
• What evidence would cause the manager to revise the thesis?

That last question is particularly useful. Almost any manager can construct a persuasive narrative around a large market or technological shift. A more rigorous investment thesis should also contain conditions under which the manager would conclude that part of the original argument was wrong. If no conceivable evidence could weaken the thesis, the LP may be evaluating a story rather than an investment strategy.

Asking questions is particularly important when it comes to assessing funds built around broad trends. Statements such as “AI will transform financial services” or “climate technology is a large market” may be true, but they do not by themselves constitute an investment strategy. The relevant question is which part of that change the manager expects to create investable opportunities, over what period and on what evidence.

4. Match Strategy to Expertise

The proposed mandate should also be compared with the manager’s experience.

There is a strong positive relationship between the specialization of the individuals at the VC level and the resulting investment success. Generalist investors tend to perform worse, in part because they allocate capital less effectively across industries and select companies less successfully within those fields.

It is wise to examine whether the scope of the mandate is supported by the team's accumulated expertise. A manager proposing to invest across a wide range of unrelated fields should be able to explain how their competence can cover all those areas.

For example, if a manager proposes to back cybersecurity, biotech, energy tech, and AI applications all under one fund, then the managing team’s background should be able to clearly justify those choices.

One of the simplest tests is to ask what the manager will not invest in. A precise strategy should create boundaries as well as opportunities. A healthcare investor, for example, might exclude therapeutics because the team's expertise lies primarily in medical devices.

Those exclusions matter because they reveal whether the strategy is actually governing investment decisions. If almost any attractive company can be rationalized into the mandate, the mandate is providing very little discipline at all.

5. Stress-Test the Fund Mathematics

Next is to look at the maths the portfolio was created with. The proposed fund size, check sizes, ownership targets, number of investments, and follow-on reserves all need to be tested to see whether the fund can plausibly produce the returns that are targeted. A good starting point is the relationship between fund size and portfolio construction.

A few areas that are particularly worth testing:

• What ownership does the manager expect to acquire initially, and how much is likely to remain after subsequent financing rounds?
• How much of the fund is held back for follow-ons, and according to what rules is it deployed? LPs should understand whether reserves are intended primarily to defend ownership in winners, support struggling companies, or both.
• How much of the fund can ultimately be invested in a single company after follow-ons? A portfolio that begins with x number of companies may become considerably more concentrated once reserves are deployed.
• Venture outcomes are highly skewed, so the model should show how much of the target fund return depends on one or two exceptional exits. 
• Are the valuations used in the model consistent with what the manager is seeing in the current pipeline? Small changes in entry price can materially affect ownership and therefore fund-level outcomes.
• The LP should examine what remains after management fees, expenses, and carried interest rather than relying on a headline gross multiple.
• If the manager raises materially less than the target fund size, can the same strategy still be executed? A smaller close may require fewer investments, smaller reserves, or different ownership targets.

This all becomes especially important as fund size increases. If a manager owns 5% of a company at entry and is diluted to 3% by exit, a $1 billion outcome returns roughly $30 million to the fund before accounting for any additional investment. That is transformative for a $20 million fund and far less so for a $100 million fund.

Working backward from plausible ownership and exit values can therefore be more informative than starting with a target return and building assumptions around it.

The purpose of the exercise is to identify which assumptions the return profile depends on most heavily and whether those assumptions are realistic for the market the manager intends to invest in.

Document the Underwriting Case Before Committing

At the end of the diligence process, an LP will still be left with uncertainty. With an emerging manager, some of the most important evidence will only become available after the fund begins investing.

That memo does not need to predict the fund's eventual return. It should record the assumptions on which the investment decision depends.

For example:

• The manager will continue receiving access to the type of companies visible in the current pipeline.
• The team can acquire the ownership levels assumed in its portfolio model.
• The stated specialization will translate into better investment selection.
• The partnership remains intact through the investment period.
• Follow-on capital will be concentrated in companies demonstrating the strongest evidence of success.

Those assumptions can then be revisited as the fund develops. The purpose is not to prove that the original decision was right. It is to determine whether the original reasons for making it remain true.

A useful final step is therefore to record the investment case before the outcome is known. The underwriting memo should identify the few assumptions that need to hold for the commitment to make sense and the developments that would weaken the original case. This creates a much cleaner basis for evaluating the relationship later. When Fund II arrives, the LP does not have to rely on memory or on the manager’s retrospective explanation of Fund I. 

Going back to Union Square Ventures, Eakman could not know in 2004 that USV would eventually produce the returns it did. His decision had to rest on what could reasonably be established at the time.

Eakman could not know in 2004 that Union Square Ventures would eventually produce the returns it did. Twitter did not exist. Neither did Etsy, Tumblr, or Coinbase. There was no Fund I performance chart capable of making the decision for him.

What he could evaluate was the evidence available before those outcomes existed.

That is ultimately the job when underwriting an emerging manager. A track record converts past decisions into measurable results. Without one, LPs have to work backward and examine the ingredients that may eventually produce those results: how the manager thinks, what opportunities they can access, where they have genuine expertise, whether the strategy holds together, and whether the economics of the fund make sense.

The uncertainty cannot be removed. The job is to determine whether there is enough evidence to underwrite it.

Continue the Conversation

Emerging managers are part of a much broader venture ecosystem, and understanding how LPs assess them helps explain how capital moves through it.

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