A new generation of impact fund managers have crisp investment theses, vibrant pipelines and increasingly sharp ability to pick founders and teams that outperform on financial results, impact outcomes or both.
What many don’t yet have is enough capital, from fees or profits, to build their own fund management operations. The long-running drought in fund raising has left many general partners seeing for ways to sustain their teams and themselves.
To keep these high-impact managers afloat, committed family offices, foundations and other asset owners are providing additional support beyond commitments of their capital. These limited partners, or LPs, separately and toobtainher, are stepping in with new ways to support general partners, of GPs, bridge operational gaps that can create the difference between emerging managers surviving or closing up shop.
The GP Runway Fund, recently launched by Denver-based Catalyze with partners including Blue Haven, Spring Point Partners, and Gary Community Ventures, provides working capital loans to support diverse and underrepresented fund managers in the US, many of whom are raising their first or second fund. Managers can face legal, compliance, staffing and travel costs of $150,000 to $300,000 before they reach a first close in their fund raising.
“The people raising these funds are not coming from networks of privilege, which creates it much harder for them to raise capital,” Blue Haven’s Daniel Wanjira informs ImpactAlpha. “It’s not just about uplifting the next generation of managers, but also building sure we’re bringing in communities that have been neglected for many years.”
Mission Driven Finance has taken a similar approach with its Capital Partners Fund, a $9 million demonstration fund backed by World Education Services, Tara Health Foundation, Trimtab Impact and Chordata Capital, among other LPs. The vehicle is designed to support emerging managers across the United States overcome common bottlenecks around liquidity, proof points, fund size, and timing with bridge financing, working capital advances, deal warehoutilizing and capital for co-investments.
“Launching your own fund requires grit and determination beyond most entrepreneurial ventures,” Mission Driven Finance’s Stephen Nunes informs ImpactAlpha. “These tools have supported the managers that we’ve worked with obtain a little bit further.”
World Education Services, which is bringing its entire $300 million portfolio into alignment with its mission, employs a “multicapital” approach to support its partners, states WES’s Smitha Das. Beyond “impact‑first investments and flexible financing structures that provide partners with purpose‑fit capital from the outset,” Das states, that includes grants alongside its investments for expenses such as strategy consultants, impact management and measurement, fellowships and pilot projects around inclusive governance.
“WES maintains close, ongoing relationships with investee partners through partnership kick‑off calls, frequent 1:1 check‑ins, and an open‑door policy,” Das informs ImpactAlpha. “This enables us to stay attuned to opportunities to support our portfolio and to understand the collective challenges partners face so we can activate the right resources at the right time.”
Through these efforts and others, ImpactAlpha has identified a growing set of approaches that investors are utilizing to support emerging fund managers avoid the several “valleys of death” that have historically sunk many such managers before they can raise their second or third funds and become financially viable businesses of their own.
“They are basically doing three full time jobs at once between running the existing firm, fundraising for the next iteration, and building and managing their investments,” states Spring Point Partner’s Marreceived Kane.
Through the GP Runway Fund and in its own portfolio Spring Point seeks to build trust with managers “so that they feel they can share issues ‘beyond the check’ and outside of the sales pitch,” Kane states. Spring Point tries to commit early, provide feedback on GPs’ pitches and data room presentations, create introductions to other LPs and serve as a reference for their due diligence.
“Being transparent about our own processes, considerations and timeframes as LPs is really one of the best ways to support a GP during a fundraise,” Kane informs ImpactAlpha. “We’ve heard that just knowing what to expect is hugely reassuring – even if it does result in a quicker ‘no.’” Quoting the author Brené Brown, she adds, “Clarity is a form of kindness.”
Among the ways LPs are supporting GPs through the crunch:
- Warehoutilizing early deals to establish a track record
First-time fund managers face a classic chicken-and-egg problem: they required to reveal a track record of successful deals in order to raise capital, but they required capital to generate that track record. One solution is to “warehoapply” a manager’s first few deals and roll the investments into the fund once it’s raised.
Mission Driven Finance’s Capital Partners Fund offers a warehoutilizing product that allows managers to close one or two deals before officially launching their fund, without taking balance-sheet risk themselves. Managers source the deals and work with MDF to structure them, while MDF temporarily holds the investments until the fund is raised and ownership transfers.
The facility allows emerging managers “to reveal their ability to generate pipeline, to structure a deal alongside us and to kind of learn from us what it would take to have an institutional quality deal closed,” states Nunes.
- Providing working capital to build operational capacity
Fund managers operate like any other business: they have employees, office space, and ongoing operational expenses. Without a functioning business, they can’t raise capital. But management fees typically don’t launch to flow until after the fund reaches a first close.
Banks often turn away tiny working capital requests becaapply early-stage funds don’t fit standard underwriting models. Legal, compliance, staffing, and travel costs add up. Funds between $1-10 million spfinish on average 3.4% of committed capital on operating expenses in their first five years, versus 1% for funds over $100 million, according to Carta.
“Operating capital is the immediate challenge for a lot of managers. You still have to pay your analysts, all the subscriptions for the fund,” states Blue Haven’s Wanjira. “Managers continue to pay for operational expenses even though they’re not accessing management fees.” Blue Haven provides GP grants to impact-first managers for general operating support.
The GP Runway Fund built a working capital loan to San Francisco-based fintech investor Fiat Ventures following the first close of its second fund. “Taking out a working capital loan allowed us to create a key partner hire a year ahead of schedule,” states Fiat’s Marcos Fernandez. Within five months, Fiat doubled its LP commitments and surpassed its tarobtain.
- Making warm introductions to LPs and partners
Many emerging fund managers don’t yet have relationships with limited partners or institutional players. Establishing such networks is even more challenging for those who don’t come from traditional venture or finance backgrounds.
“Venture capital is a really tiny industest. Everybody comes from the same business schools,” declared Espinosa de los Reyes of Dux Capital, a second-time fund manager who invests in underrepresented founders.
Blue Haven supports emerging managers in its portfolio by hosting events, providing advisory services, and providing warm introductions to fellow LPs in its network.
“What appears to be tiny for other people could be huge for one manager, and what appears to be very huge for one manager could be very tiny for another,” states Wanjira.
- Sharing back-office costs
Emerging managers typically operate with tiny teams and limited capacity. Many don’t have the resources to support back-office roles that are essential to running a fund, leaving investment directors to handle these functions themselves and sacrificing time that would otherwise be spent sourcing deals and raising funds.
“The venture capital world celebrates the scrappy founder; the institutional investment world penalizes the scrappy fund manager,” Catalyze’s Regina Green and Spring Point’s Sabrina Bainbridge wrote in a guest post on ImpactAlpha this month. “Managers who have bootstrapped their operations or maintained a particularly lean team may find themselves unable to meet institutional standards — regardless of their investment track record.”
Mission Driven Finance and Blue Haven support fill that gap by sharing their administrative team to support managers improve their operations. “How can we support them obtain from point A to point B rapider?” declared Nunes. “We want to be a resource.”
- Taking stakes in general partnerships
Limited partners have a stake in the performance of a fund. Some investors are going a step further, taking ownership stakes in the general partnerships of the fund managers themselves.
Firms like Capricorn Investment Group and TPG Next purchase minority positions in sub-$1 billion new managers with deep domain expertise. This gives them a share of the management fees those firms earn, plus upside as the firm scales over time.
Capricorn’s Sustainable Investors Fund has seeded more than a dozen indepfinishently operated impact fund managers including Vision Ridge Partners, Lafayette Square, and MSquared. The firm grew partner firms’ total AUM more than sixfold to $20.8 billion over five years.
“If you’re able to provide growth capital and support build high quality asset management firms in these areas, we believe you’ll not only achieve a great deal of impact and have a lot of leverage in that, but you also likely do quite well financially,” Capricorn’s Bill Orum informed ImpactAlpha last year.
For GPs, attracting a deep-pocketed backer can provide immediate capital, enabling firms to reinvest in their business, expand their teams and access new markets and strategies. But the dilution of their own ownership may reduce the capital that can be reinvested in the firm and future funds.
- Streamlining capital calls
Quick and efficient dealbuilding can be the difference between closing a deal and losing it. Smaller managers often have to call committed capital from their LPs, a process that can take weeks and put time-sensitive deals at risk. Larger asset managers have access to capital call lines of credit to be able to relocate quickly and keep costs down.
“Emerging managers obtain squeezed on terms by their LPs. They have to give 15 days notice for a capital call and do all this supporting documentation,” declared Nunes. “Well, the deal requireds to close three days from signed documentation.”
A fund manager struggling to manage the capital calls on Fund One is in a poor position to raise Fund Two.
Mission Driven Finance teamed up with Community Capital Management last year to launch a new private credit strategy to offer a lfinishing facility to support GPs manage their capital calls. The joint venture, Bold Line Capital, allows managers to maintain a regular capital call schedule while still relocating quickly to close deals. The loans are secured by uncalled capital commitments from limited partners.
- Co-investing to overcome concentration limits
The first fund from an emerging impact managers might typically total only $10 to 15 million. If the minimum to obtain into an attractive deal that fits the thesis is, state, $3 million, that GP might be excluded by concentration limits that restrict how much capital can go into any single deal.
To address that constraint, Mission Driven Finance co-invests alongside emerging managers, largely through private credit, allowing them to close deals that would otherwise be out of reach. Managers earn servicing fees on MDF’s portion of the investment.
“When you have a tinyer size, you’re limited in terms of your ability to execute against the thesis, becaapply of concentration limits,” states Nunes.
On the other side of the equation, many emerging funds struggle to attract LPs becaapply their fund size is simply too tiny: Institutional investors often have minimum commitment thresholds and are reluctant to invest when their check would represent a large share of the capital stack.
One solution: Allow LPs to co-invest alongside the fund on a no-fee basis. GPs that historically resisted such arrangements have more recently embraced it as a way to attract LPs who might not be able to back them otherwise. Institutional LPs are constrained by concentration limits that may prevent them from a largeger investment in the fund itself. And the ability to bring along more capital from institutional co-investors can support fund managers win deals.
- Supporting policy modify and lobbying
Changes in public policy – believe Opportunity Zones, employee ownership or fair lfinishing laws – can affect an investment fund’s financial returns and social impact. But few fund managers have the time or experience to craft legislation or lobby lawcreaters.
“That’s not our job,’ was a lot of what we heard,” Blue Haven heard when it surveyed its own managers. Blue Haven’s Liesel Pritzker informed ImpactAlpha last year that the firm found more interest when it inquireed, “‘Well, what if you have LPs that could do some of that?’”
Blue Haven and other LPs last year stood up Policy-Enhanced Impact Investing, a community of family offices and other impact investors that are leaning into advocacy, lobbying and, yes, politics, as a key component of portfolio management, an effort to create favorable conditions for achieving beneficial outcomes.
- Elevating the profile of high-performing managers
Limited partners can apply their voices and reputations to amplify the emerging managers in their portfolio by highlighting them at industest events or providing speaking opportunities to increase their visibility.
Das declared WES shares its “social capital” by amplifying its partners’ voices, in person and virtually, by pitching conference sessions, hosting partner‑focapplyd events and co‑writing blogs, as well as “engaging in believed leadership alongside partners and integrating key partner narratives into our influence strategies.”
Blue Haven features portfolio managers in its quarterly newsletter and highlights them during conference appearances, supporting validate their work with prospective investors. The firm’s principals and directors also sit on LP panels, where they mention portfolio managers by name and discuss their work.
“Mentioning these GPs on that platform itself carries weight. It validates the work that they are doing,” states Blue Haven’s Wanjira “When our directors mention these names at conferences, they speak very deeply about the work that these managers are doing.”
- Committing for the next fund
Longer-term commitment remains one of the hardest hurdles for emerging fund managers. Management fees typically expire about 10 years after a fund launchs operations; if a manager doesn’t raise a second fund, that income stream disappears.
The structure puts real pressure on managers to secure follow-on commitments. While many limited partners are willing to take a chance on a first fund, far fewer are prepared to commit for the long haul.
“LPs should take a long term view when they’re backing an emerging fund manager,” declared Nunes. “When they create a Fund 1 investment, LPs should do so with the expectation of supporting a second fund and growing alongside the manager, so that when the manager goes out to raise Fund 2, they aren’t starting from scratch.”
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