Latest / IMI Podcasts / Innovation Doesn’t Require a Track Record; it Requires Conviction

Transcript

Innovation Doesn’t Require a Track Record; it Requires Conviction · IMI Podcasts

• 0:00
  SPEAKER_00: Many institutional investors understandably favor funds that have already completed several cycles.
• 0:05
  SPEAKER_00: Accumulated experience conveys security, and predictability, or at least the perception of it, remains a decisive criterion when allocating capital to an asset class that is, by definition, risky.
• 0:18
  SPEAKER_00: Even so, this preference, while intuitive, does not always reflect the reality of what generates the best opportunities.
• 0:26
  SPEAKER_00: Performance in venture capital does not follow a linear logic.
• 0:30
  SPEAKER_00: Past success, although relevant, does not guarantee a repetition of results, especially in a market where technological, economic, and competitive conditions change rapidly.
• 0:41
  SPEAKER_00: Teams that enjoyed privileged access to certain opportunities in one cycle may face a completely different context in the next.
• 0:49
  SPEAKER_00: New managers, meanwhile, often emerge better aligned with the current moment, closer to new entrepreneurs, and with an execution capability shaped by more recent realities.
• 1:00
  SPEAKER_00: Multiple studies document the pattern.
• 1:02
  SPEAKER_00: The Kaufman Foundation found that first-time funds outperformed established venture capital firms by an average of 3.1 percentage points annually between 1997 and 2011.
• 1:13
  SPEAKER_00: A Prekin study reached a similar conclusion.
• 1:17
  SPEAKER_00: Emerging managers outperformed in 22 of the 28 vintages the firm assessed.
• 1:24
  SPEAKER_00: Makina Capital Management, analyzing over 1,100 private funds across two decades, found that emerging managers achieved average returns approximately 250 basis points above their established counterparts.
• 1:39
  SPEAKER_00: Visit IMI's Portugal Golden Visa Fund page to find, view, analyze, and compare golden visa eligible investment funds.
• 1:49
  SPEAKER_00: Emerging managers assume a role that the market does not always recognize.
• 1:54
  SPEAKER_00: A first fund often demands a level of focus and discipline that larger structures struggle to replicate.
• 2:00
  SPEAKER_00: A smaller size forces careful choices, incentive alignment tends to be more direct, and the need to prove value creates a culture of high standards that shows in how the team analyzes and supports its opportunities.
• 2:13
  SPEAKER_00: A human element rarely appears in the metrics, yet it weighs heavily on access to deal flow.
• 2:18
  SPEAKER_00: Many of these managers remain deeply embedded in the ecosystems in which they operate.
• 2:24
  SPEAKER_00: They do not rely solely on brand recognition or formal processes to originate investments, but rather on relationships, constant presence, and credibility built within specific communities.
• 2:36
  SPEAKER_00: This proximity often allows them to identify talent and projects before they become consensus opportunities, precisely when the potential for value creation is greatest.
• 2:46
  SPEAKER_00: The very functioning of venture capital depends on renewal.
• 2:49
  SPEAKER_00: Without new management teams, new theses, and new approaches, the sector would tend to concentrate capital in fewer hands and increasingly homogeneous strategies.
• 2:59
  SPEAKER_00: Innovation, the object of the investment itself, also requires innovation on the investor side.
• 3:05
  SPEAKER_00: Emerging managers contribute to this diversity by exploring underfunded sectors, geographies beyond the main hubs, and business models that the broader market has not yet validated.
• 3:17
  SPEAKER_00: Despite this, a gap persists between the relevance of these managers to the ecosystem and the ease with which they can raise capital.
• 3:26
  SPEAKER_00: Part of this difficulty is structural.
• 3:29
  SPEAKER_00: For an institutional investor, the risk of backing a fund without a track record is visible and easy to explain.
• 3:37
  SPEAKER_00: The risk of not investing, of missing access to a new generation of managers who may lead the market in the coming years, is more diffuse, harder to measure, and therefore seldom part of the conversation.
• 3:50
  SPEAKER_00: This is, to some extent, the paradox.
• 3:53
  SPEAKER_00: By privileging only established funds, many investors end up entering larger vehicles with more competition for the best opportunities and less flexibility to invest at early stages.
• 4:04
  SPEAKER_00: The concentration is stark.
• 4:06
  SPEAKER_00: In early 2024, just two firms accounted for 44% of all LP capital allocated to U.S.
• 4:14
  SPEAKER_00: venture, according to Pitchbook.
• 4:16
  SPEAKER_00: At a time when venture capital is going through a period of greater discipline and selectivity, these dynamics become even more evident.
• 4:24
  SPEAKER_00: Less exuberant markets tend to favor focused, agile investors with strong conviction in their theses, characteristics that describe emerging managers well.
• 4:35
  SPEAKER_00: Smaller teams adapt more quickly, make decisions with less inertia, and maintain closer proximity to founders and operating teams.
• 4:44
  SPEAKER_00: In the long term, supporting emerging managers is not merely a portfolio decision.
• 4:50
  SPEAKER_00: It is a choice that influences the vitality of the entire ecosystem.
• 4:55
  SPEAKER_00: These are the investors who test new ideas, challenge consensus, and often discover the companies that will define the next decade.
• 5:05
  SPEAKER_00: Ignoring them does not eliminate risk.
• 5:07
  SPEAKER_00: It merely shifts it.
• 5:09
  SPEAKER_00: And in a sector where value often emerges before anyone can measure it, that shift can be decisive.
• 5:17
  SPEAKER_00: This episode first appeared as an article by Fernando Ferreira on imidaily.com.
• 5:23
  SPEAKER_00: Subscribe for free to the IMI newsletter for breaking news and updates from the investment migration industry.
• 5:30
  SPEAKER_00: And upgrade your membership to IMI Pro to get access to our exclusive professional community, citizenship catalog, investment migration company Rolodex, private briefings, and more members only content.