By Sara Zulkosky
In venture capital’s emerging manager landscape, manager selection is everything, but institutional investors consistently make a critical error: reflexively backing spinouts from established VC firms while overlooking operators-turned-investors.
This misallocation of capital doesn’t just represent missed opportunities. It actively reinforces homogeneity in an industry that thrives on contrarian thinking, leaving alpha on the table.
The false security of VC pedigree
When LPs back spinouts, they’re betting on transferable skills that often prove less portable than assumed. Working at a blue-chip firm provides valuable exposure to investment frameworks, but success at established funds comes with substantial support infrastructure: teams of analysts, operations professionals and investor relations specialists, and well-resourced platforms that disappear when launching a solo venture.
This creates significant blind spots. Many spinouts excel at deal evaluation but struggle with the operational complexity of running a fund. Their networks, often built on institutional brand recognition rather than personal relationships, may weaken when they strike out independently. Additionally, replicating strategies from mega funds rarely generates alpha in smaller vehicles operating in different market segments.
The risks become evident when asking hard questions: How much of a spinout’s track record reflects personal contribution vs. team effort? Will their founder relationships survive without the prestigious logo on their business cards? Can they build distinctive value propositions beyond what they’ve been trained to recognize? How will they rise to the occasion when every decision rests on their own shoulders?
The assumption that a good picker from a prestigious firm will automatically build a successful fund ignores the fundamental reality that launching and scaling a venture firm requires an entirely different operational skillset.
The gap between perceived and actual risk represents one of venture’s most persistent inefficiencies. Backing spinouts isn’t the conservative choice it appears to be. It’s simply the conventional one.
The undervalued operator advantage
Conversely, operators-turned-investors bring complementary strengths that institutional investors frequently underestimate. Their firsthand experience building companies creates pattern recognition that’s difficult to develop from the investor side alone. They possess authentic networks built through working relationships rather than transactional interactions, yielding proprietary deal flow from founders who prioritize investors who understand their challenges firsthand. And let’s be honest, building a venture fund is its own entrepreneurial effort — you’re just building a different kind of company.
However, operators face their own challenges. They typically lack established LP networks, making fundraising substantially more difficult. Many haven’t developed the portfolio construction frameworks that come naturally to career investors. Their industry-specific expertise, while valuable, can sometimes create a rigidity when evaluating opportunities — they need to know when to expand their niche as markets evolve. This is easier said than done.
Finding the right balance
The future of venture capital belongs to those who can combine both operational insight and investment discipline. For LPs seeking alpha, this means developing more sophisticated frameworks for evaluating emerging managers — ones that assess actual capabilities rather than pedigree.
For spinouts, success requires honest self-assessment about operational readiness and distinctive advantages beyond their former firm’s playbook. For operators, it demands complementing industry expertise with the business of venture.
The industry’s challenge isn’t choosing between these talent pools. Emerging managers with great potential will come from both categories. The true challenge is confronting outdated frameworks for manager selection that must be revisited for the emerging manager space.
Sara Zulkosky is the co-founder and managing partner of Recast Capital, a 100% woman-owned platform investing in and supporting emerging managers in venture.
Illustration: Dom Guzman
Stay up to date with recent funding rounds, acquisitions, and more with the
Crunchbase Daily.
