Israeli venture firm Team8 today published research on why institutional money is flowing away from the newest venture funds, as global limited partners put 6% of their 2025 commitments into funds smaller than $50 million.

That is the lowest reading since the dot-com crash. Small and first-time funds, meanwhile, have a long record of beating bigger, older managers.

Team8 partner Aaron Dubin wrote the paper, called “The Emerging Manager Paradox.” It draws on interviews with limited partners, general partners and industry experts. The quantitative work rests on fund data from Preqin Ltd. and PitchBook Data Inc., plus a decade of Forbes Midas List rankings. Team8 has $1.8 billion under management. Its portfolio runs to cybersecurity, software infrastructure and fintech companies.

First-time funds beat established managers on median net internal rate of return in most vintage years between 2000 and 2022. The figures come from Team8’s analysis of Preqin data. The gap peaked in 2008. First-time funds that year ran 15 percentage points ahead.

Team8 went through 1,000 Midas List entries published between 2016 and 2025, looking for names that recurred. Nearly 50 investors turned up seven times or more. Almost 70% of them had built or run a company before they became investors. Career VCs with no operating background accounted for about a fifth. One in 10 had none of those backgrounds.

Global first-time early-stage funds have run to a median of about $20 million across the 2021 through 2025 vintages. That is a $400,000 annual budget at the standard 2% fee. The manager pays salaries, rent and compliance out of it. Only about one in three first-time funds raises a second.

Institutional money makes up only one-third of commitments to a manager’s first fund, according to the report. The rest comes from wealthy individuals, smaller family offices and allocators with a specific emerging manager mandate. Waiting for proof has a cost, the report argues, because managers who clear institutional readiness tests are often oversubscribed by then.

Rafi Aviav, global head of ventures at WisdomTree Inc., said in the report that diligence, monitoring and partnership costs are “largely the same regardless of check size.” Many small commitments, therefore, cost an allocator far more than a few large ones for the same dollars deployed.

Nine venture firms collected about half of all capital raised by U.S. venture funds in 2024, according to PitchBook. Andreessen Horowitz, Thrive Capital and Founders Fund alone took 48% of fundraising dollars in the first half of this year.

“How LPs identify tomorrow’s leading venture firms is one of the most important questions facing venture today,” Dubin said in announcing the report. “Great venture firms are built long before they’re institutionally validated.”

The paper closes with three design principles. Standardized back-office, governance and reporting infrastructure would cut formation costs for new firms. Spreading exposure across several managers and vintages lets an allocator hold early positions without concentrating risk. The third principle covers warehousing arrangements and milestone-based fund creation, both intended to produce performance signals sooner.

Image: Team8