Emerging Managers Struggled in 2020

Innosphere Ventures works at the Intersection of Technology Startups, Venture Capital, and Technology-Based Economic Development

2020, to say the least, was an interesting year that often defied explanation. 2020 trends in venture capital have recently been reported. If you are raising VC in 2021 or you are an emerging manager, take note. PitchBook summed it up well in its 2020 venture capital annual report. "Seed-stage and first-time financing activity fell sharply, proving a more challenging fundraising environment for newer entrepreneurs. Female founders and entrepreneurs in the middle of the country, who have traditionally been underrepresented in VC funding, also felt the impact of investors largely allocating capital to existing portfolio companies or known relationships. Emerging VC fund managers have had a difficult time raising capital as well, with LPs seemingly unwilling to take risks on unproven investors and shying away from new relationships. Established firms secured nearly 75% of the total capital raised for venture funds in 2020, marking the highest share this cohort has held since 2012." (PitchBook 2021)

Innosphere Fund II is classified as an emerging fund in that we have not managed four or more funds to date. We certainly found that 2020 was a challenging year to gain significant traction with Limited Partners, or investors. The data now helps explain the challenge many emerging managers faced this past year. PitchBook reported that ~75% of all capital invested in venture funds, in a record-breaking year for VC, went to established funds. This is logical, back who you know and who has a track record in times of uncertainty. While this makes logical sense, this trend will continue to exacerbate the existing concentration of VC in California, Massachusetts, and New York and make it more challenging to raise capital locally.

For states like Colorado that have growing technology based economies, this means we will continue to see the vast majority of VC funding coming from out of state (estimated by Innosphere in 2019 to be ~75%). While this may be a challenge we will have to address, we also believe there is a real opportunity for Colorado-based and regional investors to back local emerging fund managers and start the process of breaking the high concentration of growth capital from coastal regions and better stimulate local technology-based economic development.

Mike is the CEO and General Partner at Innosphere Ventures (www.innosphereventures.org)