Israeli venture firm Team8 has released research showing that institutional investors directed only 6% of their 2025 commitments into venture funds smaller than $50 million, the lowest share since the dot-com crash. The finding affects limited partners and emerging managers alike, as small and first-time funds have historically outperformed larger, established players. Team8, which manages $1.8 billion in assets across cybersecurity, software infrastructure and fintech, published the report, titled The Emerging Manager Paradox.
Team8 partner Aaron Dubin authored the paper, which draws on interviews with limited partners, general partners and industry experts, along with fund data from Preqin Ltd. and PitchBook Data Inc. and a decade of Forbes Midas List rankings. The analysis found that first-time funds beat established managers on median net internal rate of return in most vintage years between 2000 and 2022, according to Preqin data. The performance gap peaked in 2008, when first-time funds ran 15 percentage points ahead of their larger counterparts.
The research also examined 1,000 Midas List entries from 2016 through 2025, identifying nearly 50 investors who appeared seven times or more. Of those repeat performers, almost 70% had built or run a company before investing, while about a fifth were career venture capitalists with no operating background, and one in ten had neither. Team8 found that global first-time early-stage funds have raised a median of roughly $20 million across the 2021 through 2025 vintages, leaving a manager with a $400,000 annual budget at the standard 2% fee to cover salaries, rent and compliance, with only about one in three such funds raising a second.
Rafi Aviav, global head of ventures at WisdomTree Inc., said in the report that diligence, monitoring and partnership costs remain largely the same regardless of check size. As a result, many small commitments can cost an allocator far more per dollar deployed than a few large ones. The concentration of capital is stark: nine U.S. venture firms collected about half of all fundraising dollars in 2024, and Andreessen Horowitz, Thrive Capital and Founders Fund alone took 48% of funds raised in the first half of this year.
Dubin said in announcing the report that how limited partners identify tomorrow鈥檚 leading venture firms is one of the most important questions facing the industry today, adding that great firms are built long before they receive institutional validation. The paper concludes with three design principles for allocators. These include standardized back-office, governance and reporting infrastructure to cut formation costs, spreading exposure across multiple managers and vintages to hold early positions without concentrating risk, and using warehousing arrangements and milestone-based fund creation to generate performance signals sooner.
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