Raising a first fund is hard. For many emerging managers, raising a second, or even third, fund is proving even more difficult.
With pledges made in the aftermath of the 2020 murder of George Floyd now receding, diverse and first-time fund managers face a “second wave” capital gap. That is slowing their momentum just as many are establishing early track records as investors.
Leading LPs are testing new approaches, providing operating capital and anchor investments and even making multi-fund commitments, to help promising managers survive the hardest stretch of institutional fundraising.
“We are sticking by our managers,” says Javier Hernandez of the California Wellness Foundation, a $1 billion private foundation that has seeded first and second funds for emerging managers, including Vamos Ventures, Urban Innovation Fund and Illumen Capital. “These are funds that are top performing.”
Managers that raised funds five to seven years ago are coming back to market in one of the harshest fundraising environments in years. Many are folding their tents. Their failure deprives the impact investing market of diverse talent and hard-won experience.
Cal Wellness is doubling down, and as a signal of its conviction, is moving many of the managers into its endowment portfolio after originally deploying philanthropic capital into the earlier funds. The foundation’s investment into the second fund from Twine Ventures, a woman-led early stage venture capital firm that invests in mission-driven founders, for example, will come from its endowment following a 2021 program-related investment into Twine’s first fund.
“Even if it’s a smaller dollar amount, we can come in to signal that we’re committed to your work,” Hernandez told ImpactAlpha. “How do we sustain these firms and allow them to mature and graduate? That’s the real test for institutional investors like us.”
Hitting a wall
Diverse and emerging managers received a flood of new commitments at the beginning of the decade as part of a broader racial reckoning. The outpouring of support proved short-lived. Under the harsh glare of the Trump administration, corporations and institutions have quietly rolled back racial-equity commitments and scrubbed diversity language from their web sites.
“We saw a lot of emerging managers entering the market after the George Floyd issue, and then a lot of new impact capital coming in through corporates. They all jumped into the pool,” says Thaddeus Fair of Living Cities, a collaborative of foundations and financial institutions.
“All those vintages that grew out of the George Floyd trauma haven’t had liquidity in their investments, because capital markets are so tight,” says Fair. “It’s a tough market out there.”
Minority and women-owned firms raising the first funds reached a peak of 63% of first-time funds in 2020 and 2021, according to Fairview Capital. Many of those fund managers that rode the wave of support are hitting a wall as they struggle to raise their second and third funds.
For more than a decade, the universe of woman- and minority-owned private equity and venture capital firms raising capital has expanded without interruption, growing from fewer than 50 firms in 2014 to a record high of 537 in 2024.
That streak is now broken, according to a new report by Fairview, a minority-owned firm that co-invests with institutional investors, such as pension plans, insurance companies, endowments and foundations, in emerging and diverse managers (read, and listen to, “Fairview Capital’s emerging wisdom about emerging and diverse fund managers”).
The number of diverse managers that are actively raising capital fell 12% last year, the first decline since Fairview began tracking the data. Among the 471 woman- and minority-owned firms raising capital last year, more than half were raising a first-time fund, while a quarter of them were raising a second fund; 13% were raising a third fund, and 10% were raising a fourth fund or beyond. There were 135 African-American-owned fund management firms in the market in 2025, a 20% decrease compared to 2024.
Tough vintage
It’s not specific to emerging managers. “A lot of 2020 funds are struggling,” says Sydney Thomas, a general partner with Symphonic Capital, a diverse-owned fund that raised $13 million for its debut fund last year (see, “How Symphonic Capital is setting up pre-seed founders for success”). The low interest rates and flush capital of five or six years ago led to inflated valuations as many venture capitalists loosened their standards to compete for deals.
“That vintage does not actually look great on paper compared to the vintage years of 2023 and 2024 and 2025 when we were just able to go back to those basics of what it takes to return capital to your LPs,” adds Thomas.
But diverse and emerging managers face extra hurdles, from pattern-matching bias to an overscrutiny of track records, leaving little margin for error. Emerging impact managers “are asked to prove a financial track record they cannot yet have, against a benchmark designed for a different asset class, while also defending an impact thesis the LP often hasn’t decided how to evaluate,” says Robert Zulkoski of Conduit Capital, which incubates innovative impact structures.
And with transient investors gone and even mission-driven funders that want to support emerging managers facing cash crunches, there is less capital to go around. That is creating “a capital cliff” for emerging managers, says Living Cities’ Fair.
“It scares anyone that’s a new LP, because the first question you get asked is, ‘What happened to all your other LPs’” he says. “Even if it’s not your fault, if you’re running a top decile or quartile fund, and you see 30% or 50% of your best LPs roll over, it’s usually a sign that you’ve done something wrong, or that there’s been underperformance, or that something’s not right under the hood.”
The situation is raising tough questions for impact investors about the depth of their own commitments, and how they can be better partners to a new generation of high-impact managers looking to break into what has been a clubby world of venture capital.
Some funds launched in the post-2020 surge have been in the market for years without closing. Black woman-led Genius Guild, backed with an initial $5 million from Pivotal Ventures, The Impact Seat and First Close Partners in 2021, has yet to announce a final close for its first fund.
Other emerging fund managers are dropping explicit diversity themes. Jumpstart Nova was among the crop of successful first-time managers four years ago when it exceeded its $30 million target for its inaugural fund, backed by LPs including Cardinal Health, American Hospital Association and Bank of America (see, “Jumpstart Nova raises $55 million to invest in Black healthcare founders”). The firm, which built its first fund around Black healthtech founders, is raising its second without that focus. The fund, launched in 2024, has raised $15.5 million towards its $100 million target, according to an SEC filing.
Fundraising momentum
To be sure, not all diverse emerging managers are struggling. Some are thriving and outperforming. As in the broader fundraising market, capital is flowing to managers who have established a track record and relationships.
Symphonic Capital’s Thomas worked in venture for 10 years at Berkeley, Calif.-based early stage investor The House Fund before launching her own firm. Last year, she and her partner Shruti Shah raised $13.5 million for their debut fund, which invests in AI-enabled companies closing access gaps in health, wealth, and climate. Symphonic last week invested alongside Kalos Ventures and other LPs in a $6 million seed round for Rosarium Health, a Black-led startup helping seniors age at home.
“I launched when I felt ready to launch the firm, not when there was an abundance of capital available,” she says. “I think that actually served us really well.”
“My story is too rare,” Thomas says. “I was given the opportunity to build these relationships and build trust with these folks over close to 10 years before launching my fund, and that opportunity is too few and far between for people of color in the venture capital ecosystem.”
Vamos Ventures, a venture firm focused on Hispanic and diverse managers, has raised $70 million towards its $100 million second fund.
Cherryrock Capital, cofounded by Stacy Brown-Philpot, the former CEO of Taskrabbit in 2020 that had worked at Google and Softbank, last year raised $172 million for a debut venture fund that will invest in diverse and underinvested founders of growth-stage digital health, fintech and future of work startups.
“We wanted to help them establish fundraising momentum,” said Margot Kane, whose Spring Point Partners participated in Cherryrock’s round. “The opportunity for alpha is the founders knowing they have someone who has their backs, understands where they’re coming from and is going to fight for them.”
Beyond the check
Some LPs have taken to seeding new fund managers by taking an equity stake in the fund management business itself. Firms like Capricorn Investment Group and TPG’s Next buy minority positions in the general partnerships of sub-$1 billion new managers with deep domain expertise. Such “GP stakes” 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 independently operated impact fund managers including Vision Ridge Partners, Lafayette Square, and MSquared.
Conduit Capital is looking to launch a $20 million blended capital fund to seed emerging impact fund managers and innovative impact infrastructure, such as impact secondary markets.
But selling equity stakes in the fund management business can be dilutive and decrease the wealth-creating potential for diverse managers. Other LPs are taking a different approach, backing intermediaries that support emerging managers with liquidity, timing and proof points.
Catalyze’s GP Runway Fund, backed by Blue Haven Initiative, Spring Point Partners, and Gary Community Ventures, provides working capital loans to support diverse, emerging fund managers in the US.
Mission Driven Finance’s Capital Partners Fund, backed by World Education Services, Tara Health Foundation, Trimtab Impact and Chordata Capital, provides bridge financing, working capital advances, deal warehousing and capital for co-investments.
With its Blended Catalyst Fund, Living Cities makes working capital loans to emerging venture capital firms to help them get on their feet. Working capital is scarce for new funds that have yet to earn fees or generate returns from exits.
Its first $37 million Blended Catalyst Fund was launched in 2015. As the mission evolved to center on providing access to capital to close the wealth gap and create ownership of appreciating assets, “that led us to emerging managers,” says Fair, who runs the Catalyst fund.
He says he sees a lot of fund managers that raised a first fund but struggle to launch second or third funds because their capital is tied up in their inaugural fund. It costs at least $300,000 to launch a new fund, Fair says.
Among its 26 investments, Catalyst has written checks to Blackstar Stability, an equitable home ownership fund based in Washington, DC, and to Chicago Trend, a Chicago-based firm that owns and develops commercial properties that strengthen low-income communities.
“We were the first check in to both of those organizations,” says Fair. “Both used our investment for working capital and to purchase pools of assets to use as proof of concept.”
Blackstar went on to raise around $100 million in equity to purchase thousands of single-family homes encumbered by predatory debt. Trend raised around $12 million for its first fund, and is on track to raise the same for a follow-on fund, Fair says.
Living Cities itself is now in the market with its second Blended Catalyst Fund, which is targeting a $50 million raise.
“As allocators that also raise without asset owners, every so often we have to raise,” Fair says. “And so we are in this exact same turbulent capital market raising environment that all the fund managers that we want to support are.”
“It’s just taking longer.”
