The 12 Signals LPs Use to Spot Top Emerging Managers

very LP faces the same riddle: how do you spot a future outperformer when there’s no track record to prove it? The next Sequoia or Andreessen is, by definition, invisible at inception. Yet some LPs - like Beezer Clarkson at Sapphire Partners, Michael Kim at Cendana, and Samir Kaji at Allocate - have built their reputations by doing exactly that: picking emerging managers before the data exists.

The stakes are high. Since 2021, capital has concentrated around brand-name firms while first-time funds face their hardest market in a decade. PitchBook data shows emerging managers raised roughly $15 billion in 2024, the lowest since 2015. With exits stalled and DPI under pressure, LPs have become ruthless in their selection. They’re not just hunting alpha, they’re filtering for durability, discipline, and judgment under uncertainty.

What most first-time GPs misunderstand is how structured this process has become. LPs aren’t swayed by charisma or access alone. They follow a quiet, twelve-point diligence framework that probes everything from team cohesion and portfolio math to alignment and governance hygiene. And lately, the best allocators have added a new lens - mindset. They’re learning that intellectual honesty, founder pull, and learning velocity often predict performance long before the numbers do.

This article distills how top LPs actually evaluate emerging venture managers. It blends insights from Beezer Clarkson’s pattern-recognition philosophy, Michael Kim’s “fund math” realism, and Samir Kaji’s fieldwork with hundreds of allocators. The goal is to help new managers see themselves through an LP’s eyes; cautious, data-driven, but attuned to human signals that spreadsheets can’t capture.

Because in a market where capital is scarce and trust is scarcer, LPs no longer bet on charm or storytelling. They back evidence and rigor. And above all, they back managers who emit the right kind of signal long before the returns arrive.

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Why LP Selection Matters More Than Ever

In the earlier boom years, being a first-time fund wasn’t an automatic death sentence. LPs had more margin for error, exits were plentiful, and markups could paper over weaker picks. Today, that luxury is gone. Returns in 2023 showed how steep the new baseline is: the Cambridge Associates US Venture Capital Index fell –3.4% for the year, while private equity held up closer to flat to mildly positive. In a market where public and private valuations are under pressure, LPs are now uncompromising: they want real, realized liquidity, not just hope.

Tighter Capital, Bigger Filters

From 2023 onward, fundraising has been brutal for emerging managers. PitchBook and NVCA data show first-time fund activity collapsing toward decade lows. Many LPs are pulling back money entirely or rerouting it to proven names. At the same time, Hamilton Lane and other allocators emphasize that distributions (DPI) are now a top metric, not just tracking multiples (TVPI). That shift forces LPs to focus on funds that show credible paths to returns, not ones that rely on theoretical value growth.

That’s a sea change. In prior cycles, LPs might accept long gestation, illiquidity, or heavy concentration risk. But now, the cost of being wrong is too high. A wrong bet could immobilize capital for years and drag down the rest of the LP’s portfolio. For emerging managers, that means you’re no longer judged on your promise, you’re judged on your probability.

Liquidity, Not Just Markups

Because exit markets have cooled - IPOs are delayed, MandA multiples compressed - LPs can’t afford to wait 10+ years for returns. PitchBook recently described venture’s prolonged liquidity drought as a structural challenge, not a passing headwind. Many LPs now ask: how can I get distributions earlier? Secondary markets are becoming part of the conversation. It is estimated that the venture secondaries addressable market is now over $80B+, and savvy funds that can tap that will get extra scrutiny.

To a first-time GP, this feels harsh, but it’s also an opportunity. If you can build your diligence narrative, your fund math, and your liquidity plan with more realism than your peers, you stand out. As LPs tighten their filters, those emerging managers who already think like allocators; that is, who speak distribution, not just markup, will gain trust first. In this tougher era, LP selection rewards signal and discipline.

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The 12 Criteria LPs Use to Evaluate VCs

Ask any seasoned allocator and they’ll tell you: great emerging managers don’t pitch well, they stand up to diligence well. LPs don’t rely on charm or access. They apply a quiet, structured 12-point filter, probing for proof, process, and probability. Here’s how that looks through an LP’s lens.

1. Team Experience and Cohesion

LPs start with people. They look for founding teams whose skills and temperaments complement each other; ideally, a mix of sourcing reach, portfolio discipline, and operator DNA. Beezer Clarkson of Sapphire Partners often says that a team’s decision chemistry matters as much as credentials. Spin-outs from top firms earn a head start, but solo GPs can also pass if they’ve built a deep bench of advisors and a clear plan to mitigate key-person risk. LPs will often back-channel with founders or ex-colleagues to test those claims.

2. Proxy Track Record and Early Performance

With no fund-level history, LPs demand attribution proof. Beezer Clarkson famously pushes managers to show deal-by-deal ownership, sourcing role, and realized outcomes, not anecdotes. GPs are expected to present a mini-track record: angel deals, scout allocations, or prior-firm investments, with clear evidence of who made the call and how those companies fared. As Beezer puts it, “Attribution isn’t a story; it’s a spreadsheet.”

According to PitchBook’s 2024 Venture Monitor, median IRRs for emerging funds vary by more than 25 percentage points between top- and bottom-quartile managers; LPs use attribution discipline to guess who’s in which camp.

3. Investment Thesis

Every LP asks: why does this fund need to exist? The thesis must show distinctiveness - a crisp market gap, supported by the GP’s earned edge. Michael Kim at Cendana Capital looks for what he calls structural differentiation, not flavor-of-the-month ideas. A focused, believable niche (e.g., vertical SaaS at pre-seed, or AI tooling for logistics) often beats a sprawling “generalist” claim.

4. Deal Sourcing and Access

Allocators also examine founder pull, the rate at which entrepreneurs reach out unprompted. Consistent inbound deal flow (ideally shown in your DM or referral logs) signals a deeper moat than competing for co-invest invites. Many LPs see inbound demand as a stronger provenance indicator than just being second- or third-party in syndicates.

5. Portfolio Construction

Here’s where LPs get quantitative. They expect to see fund math discipline - target ownership, check sizes, reserves, and exit assumptions that add up. Michael Kim’s “60× rule” is now standard LP shorthand: a $100M fund targeting 5% ownership must reach roughly $6B in cumulative exit value to hit 3× returns. GPs who can’t justify this math lose trust quickly.

Samir Kaji consistently cautions GPs against oversized ambition: he argues that fund size should be determined by what you can credibly win, not by how much you think you should raise. He often advises first-time managers to ‘stay small, stay authentic’ rather than overreach. A $40M focused seed fund may be more credible than a $150M generalist one. LPs often model this against Cambridge Associates’ benchmarks, comparing realistic DPI paths by fund size cohort.

6. Value-Add

“Value-add” has become a cliché, so LPs now ask for evidence. They expect case studies: founders referencing specific help (a pivotal hire, a bridge round, a key customer intro). LPs back-channel these claims, and the best GPs can quantify impact; for example, portfolio revenue growth post-investment or reduced burn via introductions. Beezer Clarkson’s team at Sapphire explicitly checks founder NPS during diligence calls.

7. Liquidity

The DPI era is here. With venture exits sluggish, LPs prioritize distributions over paper gains. Cambridge Associates notes that only top-quartile funds consistently sustain high DPI across vintages, while TVPI without liquidity no longer satisfies investment committees. Emerging managers who articulate secondary or early-exit strategies, and model how capital returns by year seven, not fifteen, score higher. LPs don’t expect miracles, but they certainly expect awareness.

8. Terms and Alignment

LPs want fairness and skin in the game. Typical GP commitments hover around 3%, though institutional benchmarks suggest 10–13% creates optimal alignment. GPs who under-commit signal weak conviction; those who over-commit may strain liquidity. LPs also assess management fees and carry splits for reasonableness relative to fund size. Transparency on these terms often matters more than the numbers themselves.

9. Investment Process and Governance

Governance signals maturity. LPs probe how decisions are made: Is there an investment committee? How are conflicts handled? Are there veto rights or formal voting protocols? ILPA’s Due Diligence Questionnaire (DDQ) 2.0 explicitly covers these questions. Allocators prefer GPs who can describe their decision cadence and show sample IC memos or post-mortems.

10. Operational Infrastructure

Institutional investors won’t wire capital to a fund that ‘feels DIY.’ LPs expect audit trails, compliance systems, cybersecurity hygiene, and external fund administration. Even first-time funds can meet that bar via outsourcing, but LPs deeply care about oversight and accountability. Being ILPA-ready signals you understand fiduciary duty.

11. Fundraising Traction and LP Base

Momentum is its own validation. LPs often ask: Who’s already in? A strong anchor, a few re-ups from angels or family offices, or even credible verbal commitments can tilt a decision. LPs interpret these signals through social proof math; if other allocators they respect committed, it derisks the relationship. Michael Kim calls this “momentum as due diligence.”

12. Mission and Diversity

Finally, allocators now evaluate mission integration, not marketing. The ILPA DDQ 2.0 adds specific ESG and DEI metrics; many LPs cross-check them. LPs want to see the mission reflected in sourcing, portfolio composition, and internal team diversity. Beezer Clarkson frames it simply: “Mission isn’t a slide, it’s behavior.” For LPs, authentic purpose aligns with long-term resilience, not virtue signaling.

The Bottom Line

LPs don’t tick boxes; they triangulate signals. A single weakness won’t kill a fund, but inconsistency will. Emerging managers who treat these twelve criteria as a blueprint, not a hurdle, end up communicating like allocators themselves. That’s the difference between getting a polite “we’ll watch you” and getting wired.

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The Emerging “Mindset Factors” LPs Probe

Seasoned allocators have added a quieter layer to diligence. Beyond the twelve structural criteria, they look for how a GP thinks and behaves under uncertainty. In conversations with LPs, three mindset cues consistently separate managers who mature into franchises from those who stall. These are not vibes. They are observable, documentable behaviors.

Intellectual honesty

LPs look for a culture that surfaces mistakes early and kills quickly. The ask is simple: show post-mortems, show what you learned, show when you walked away from sunk costs. In practice, GPs share a short memo library with two closed-loop examples, each noting the original thesis, the miss, the decision date, and the new rule added to the playbook. This maps directly to what ILPA’s DDQ probes around decision process, conflicts, and oversight; allocators expect evidence, not platitudes.

Founder pull

Allocators triangulate access by measuring inbound founder interest. They will ask for a simple inbound-to-outbound ratio over the last 12 months, plus a raw list of referral sources. Expect off-list back-channeling with founders to validate trust and value delivered. Samir Kaji notes that it is often the difference between “sourcing” and “winning,” and many LPs weight founder references more heavily than peer references because they reveal day-to-day behavior. A clean way to show it: a monthly dashboard with inbound share, referral breakdown, and win rate on competitive rounds.

Learning velocity

Early-stage venture is path dependent, so LPs look for fast iteration in thesis and process. Michael Kim stresses that great seed GPs pair conviction with a willingness to update priors; allocators will ask how your portfolio construction, pacing, or sector filters evolved after real feedback. Strong signals include a visible “thesis change log” with timestamps, IC template iterations across quarters, and before-after examples where speed to decision improved without raising error rates. Cendana studies how managers adapt, not just what they believe on day one.

Why this matters: LPs know early-stage is art and science. The structural checklist tells them what you do. These mindset cues tell them how you will compound. Managers who document honesty, attract founders without theatrics, and learn faster than peers give LPs confidence long before DPI arrives.

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Why Fund Size, Liquidity, and Alignment Are Under the Microscope

Between 2023 and 2025, three parts of the LP checklist have drawn sharper scrutiny than any others. The reason is simple: each determines whether a fund can actually return capital, not just promise it. In today’s environment, allocators care less about ambition and more about arithmetic.

Fund Size vs. Ownership

LPs now open every diligence call with a math test: does this fund size map to realistic ownership and exit outcomes? Michael Kim at Cendana Capital and Samir Kaji of Allocate both stress that fund size must fit strategy. A $100 million seed vehicle targeting 5 percent ownership needs roughly $6 billion in cumulative exit value to reach 3× returns; Kim’s “60× rule.” Most markets can’t supply that. LPs have seen too many managers raise oversized funds, dilute ownership, and strand performance. They now look for right-sized funds where the modeled DPI curve aligns with Cambridge Associates’ historical benchmarks, not fantasy multiples. For GPs, this isn’t punitive, it’s a reality check that builds credibility.

Liquidity and DPI Pressure

With distributions collapsing across venture, LP committees have grown allergic to TVPI without cash flow. Cambridge Associates’ 2023 VC Index showed –3.4 percent annual performance, reflecting the liquidity drought that now dominates diligence conversations. LPs want to know how you plan to deliver DPI; not someday, but within the fund’s first decade.

The best emerging managers now present explicit liquidity roadmaps: selective secondary sales, structured partial exits, or side-car funds to recycle proceeds. Secondary deal flow exceeded $80 billion last year, and LPs view managers who can participate prudently as better stewards of cash. The message is clear - show when money comes back, not just how it compounds on paper.

Alignment and GP Commit

Finally, LPs have zero tolerance for weak alignment. The traditional GP commit average still hovers around 3 percent, yet multiple academic and allocator studies point to an “optimal” band of 11 to 13 percent for true behavioral alignment. That delta is exactly where diligence friction now lives. LPs don’t expect founders of $50 million funds to mortgage their homes, but they do expect visible sacrifice and capital at risk. Skin in the game tells them you’ll defend returns, not fees.

The Takeaway

In this market, fund math, liquidity proof, and alignment form a triangle of trust. Miss one corner, and the rest of your pitch collapses. Emerging managers who can demonstrate all three - right-sized funds, early-distribution plans, and real personal stake - clear the bar that most peers still stumble on. To LPs, that’s not caution; that’s competence.

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Tools and Frameworks LPs Actually Use

For all the mystery surrounding LP diligence, most of the playbook isn’t secret at all. The frameworks allocators rely on are public, standardized, and surprisingly practical. Emerging managers who align their materials to these references instantly signal readiness. Here are the core ones that show up in nearly every institutional review.

ILPA DDQ 2.0

The Institutional Limited Partners Association (ILPA) Due Diligence Questionnaire 2.0 is the industry’s baseline checklist for evaluating fund managers. It covers everything from firm organization, team structure, and conflicts policies to valuation methods, audit controls, ESG integration, and DEI metrics. LPs use it to benchmark how “institutional” a fund’s operations are. Even small GPs can gain points by mapping their data room to DDQ sections; for example, tagging documents to “Governance,” “Risk Management,” and “Diversity Metrics.” It demonstrates process maturity and saves LPs diligence friction.

Cambridge Associates Benchmarks

When LPs test a fund’s performance assumptions, they often benchmark them against quartile data from Cambridge Associates, which publishes historic distributions of IRR, TVPI, and DPI across vintage years. GPs who reference those medians and upper quartiles show they understand base-rate constraints rather than promising outliers without justification. Cambridge publishes these quartile breakpoints in its investment-level benchmark reports and quarterly private investment benchmarks.

PitchBook / NVCA Venture Monitor

For context on fundraising and market traction, LPs and GPs alike rely on quarterly data from PitchBook and NVCA. It tracks capital flows, fund formation, first-time fund volumes, and exit activity. LPs use it to evaluate timing - whether a GP’s strategy fits current liquidity cycles - and to test if a manager’s claims about “market gaps” align with deal data. For emerging funds, citing this data grounds the story in reality: how many peers closed, what average fund sizes look like, and where capital concentration is shifting.

Kauffman Foundation Research

The Kauffman Foundation’s LP reports remain essential reading for understanding long-term venture performance dispersion. Their findings, notably that most VC funds underperform the public markets and that success is heavily skewed to the top decile, shape how modern LPs think about manager selection. Emerging managers referencing Kauffman insights (e.g., persistence of outliers, limited scalability of returns) show intellectual honesty about the odds and reinforce credibility.

Hamilton Lane Overviews

Global allocator Hamilton Lane publishes detailed market analyses that now serve as LP reference material. Their reports focus on liquidity pressure, secondary markets, and dispersion of outcomes. LPs use these to justify internal pacing models; essentially, how much venture exposure their portfolio can handle given current DPI levels. For GPs, citing Hamilton Lane helps explain why LPs’ questions increasingly center on cash flow timelines, not just multiples.

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What Emerging VCs Can Do to Stand Out

LPs aren’t looking for perfection; they’re looking for preparedness. The managers who break through today’s scrutiny don’t just tell good stories, they operationalize proof. Here’s how emerging VCs can turn diligence criteria into credibility signals.

• Document your decision process early.
  Build an archive of IC notes, follow-on rationales, and post-mortems. A few real examples show pattern recognition in motion; how you reason, not just what you believe. LPs value this transparency far more than theoretical frameworks.
  
  
• Assemble a “proof pack.”
  Replace pitch-deck logos with founder references, realized outcomes, and inbound data. Two or three credible testimonials, backed by traction numbers, carry more weight than twenty names. Include these in your data room as a “founder voice” appendix.
  
  
• Right-size your fund to your strategy.
  Use Michael Kim’s math - ownership × exit value × probability - to prove how your fund can hit 3× net returns. LPs know the numbers; showing them your internal model says you do too.
  
  
• Model your path to liquidity.
  Add a short DPI forecast: expected timing of early distributions, secondary windows, or recycling plans. Even if rough, it shows you think in cash flow, not markups; a trait allocators respect.
  
  
• Embed DEI and mission where it’s measurable.
  Whether it’s portfolio diversity or sourcing from specific ecosystems, tie your mission to metrics. Authentic integration, not slogans, stands out in LP committees.
  
  
• Communicate like an allocator.
  Share quarterly updates, pacing charts, and honest self-reviews. LPs back managers who already sound like peers; analytical, transparent, and self-correcting.

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The Final Filter: Rigor, Authenticity, and Time

LPs fund proof, not potential. The best allocators have learned to read beyond charisma and pitch polish, following a disciplined framework built on structure, mindset, and pattern recognition. They study ownership math, DPI discipline, and GP alignment with the same rigor founders apply to product-market fit. The lesson for emerging managers is simple: storytelling may open the door, but systems, transparency, and consistency are what keep it open.

Those who stand out pair rigor with authenticity. They speak in evidence, admit mistakes, and build processes that reveal how they learn, not just what they’ve achieved. LPs remember the managers who sound less like salespeople and more like stewards; operators of a long game.

Even in this risk-averse cycle, the next generation of enduring franchises is being quietly seeded. The managers who internalize LP logic early - the math, the governance, the humility - will be the ones still standing when capital flows loosen again. In venture, longevity is the ultimate credential. LPs know it. The smartest emerging GPs are already behaving like they do too.