Innovation doesn’t require a track record: investor conviction matters

Institutional investors have good reasons to favor funds that have already been through several investment cycles. The experience they’ve accumulated is often seen as an extra layer of protection, while predictability—if not actual predictability, then at least the perception of it—becomes a key factor when allocating capital to an industry defined by risk.

However, this logic doesn’t always lead to the best opportunities. In reality, a significant share of venture capital’s upside is created not by “proven over time” teams, but by those who are just stepping onto the stage—and doing it with genuine confidence in their strategy.

Early funds and top-quartile outcomes

Venture performance rarely follows a straight line. Past results matter, but they don’t guarantee the same outcome—especially when technology, macroeconomic conditions, and competitive dynamics shift quickly.

Teams that gained an edge in one cycle due to access to specific deals may find themselves operating in an entirely different context in the next. At the same time, new fund managers are often more tightly aligned with the moment: closer to emerging entrepreneurs and backed by execution experience shaped by more current realities.

In such cases, the data repeatedly confirms the pattern. For example, the Kauffman Foundation noted that early funds, on average, outperformed already operating venture firms by about 3.1 percentage points per year during the 1997 to 2011 period.

Preqin reached a similar conclusion: emerging managers led in 22 out of 28 of the vintages analyzed. And Makena Capital Management’s review of more than 1,100 private funds over two decades found that new managers, on average, delivered returns roughly 250 basis points higher than their more established competitors.

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What a first fund demands

New managers take on a role that the market doesn’t always know how to price. A first fund often requires a level of concentration and discipline that large organizations may struggle to replicate.

Smaller teams typically lead to more precise decision-making; tighter alignment of incentives; and the need to prove their value. The result is a culture of high standards—reflected both in how the team evaluates opportunities and in how it supports the portfolio.

The human factor rarely appears in formal metrics, but it is often what determines deal access. Many of these managers are deeply embedded in the local ecosystems where they operate.

They rely not only on brand recognition or standardized processes, but on relationships, consistent presence, and reputations built within specific communities.

This proximity helps them spot talent and projects before they become “consensus” opportunities—exactly when the potential to create value is often at its highest.

Why capital is needed by new players

The venture capital market itself is built on renewal. Without new teams, new investment theses, and new approaches, capital inevitably concentrates in fewer hands and increasingly flows into more uniform strategies.

And since the investment target is innovation, investors must be innovative as well.

Emerging managers expand diversity: they explore underfunded sectors, push beyond the boundaries of the main “hubs,” and test business models the market hasn’t yet validated with broad demand.

A risk that’s rarely accounted for

Even so, a gap persists between how important new managers are to the ecosystem and how easy it is for them to attract capital. Part of the issue is structural.

For an institutional investor, the risk of backing a fund without a track record can look straightforward and explainable: it can be framed as the absence of history. At the same time, the risk of “not investing”—meaning missing access to the next generation of managers who may set the direction of the market in the coming years—is less obvious. It’s also harder to measure, so it almost never becomes part of the conversation.

This is the paradox. By betting primarily on funds that have already proven themselves, many investors effectively join larger structures where competition for the best deals is higher—and where flexibility for early entry is lower.

The contrast is especially clear: according to PitchBook, in early 2024 just two firms accounted for 44% of all LP capital allocated to US venture.

Stricter markets reward conviction

When venture capital enters a period of heightened discipline and selectivity, these dynamics become even more pronounced. Less “euphoric” markets tend to support those who operate with focus and confidence in their theses—and that’s exactly how emerging managers most often work.

Smaller teams adapt faster, make decisions with less inertia, and maintain closer proximity to founders and operational teams.

Over the long term, backing new managers isn’t just a portfolio decision. It’s a choice that affects the viability of the entire ecosystem. These investors are the ones that test new ideas, challenge established consensus, and often find companies that define the next decade.

Passing on them doesn’t remove risk—it only shifts it. In an industry where value often appears before it can be measured reliably, that shift can prove decisive.

If you’re considering an investment residence permit and want to move beyond “track record only”, focus on a clear, well-grounded strategy. At Digital Nomad we help investors understand the Golden Visa options, structure a confident plan, and prepare documentation so your case is persuasive and aligned with the program requirements.

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