Co-Investments Help Emerging VC Managers Compete With $1B Megafunds

Emerging venture managers are turning to co-investment and direct deals to win limited partners as megafunds swallow the bulk of new capital.

Emerging venture managers are offering limited partners direct and co-investment opportunities to compete as funds above $1 billion captured more than two-thirds of the $74.8 billion raised by U.S. venture firms in the first half, PitchBook data show.

"If you feel good about something, that is how you can make real money," said Brian Delamarter, who manages his own family office and helps run another.

Co-investments are typically done alongside a venture firm, while direct deals involve larger checks and a limited role for the VC. LPs find the opportunities appealing because managers often charge lower fees on capital invested that way, Delamarter said, with some charging none. There is risk: if an LP selects five portfolio companies to double down on, "those five better hit," said Kyle Stanford, director of U.S. VC research at PitchBook.

The strategy lets smaller firms stretch their dollars and deepen ties with family offices, which can move quickly on such deals. It also gives LPs a way to double down on their highest-conviction companies as portfolio firms reach the growth stage, at a time when the AI boom has sharpened appetite for direct exposure.

Family Offices Move Fast on Direct Deals

Denver-based Konvoy Ventures, which has $270 million in assets under management, last raised funds in 2022, closing its third pool at $150 million. Co-founder Josh Chapman said the firm's LP relationships, most of which are family offices, can be a selling point to prospective portfolio companies.

"The idea that I could speak to a founder and say, 'Hey, we have an XYZ-size fund, but our LP base is very active,'" he said. "You can think of us as a much larger size capital base than our SEC filings might indicate."

Jack Selby, a managing director at Peter Thiel's family office Thiel Capital, co-founded Arizona-based Copper Sky Capital in 2022. The firm launched with a $115 million vehicle and said in a May filing it was raising a second $300 million fund. When Copper Sky does not exercise its pro rata rights, it typically allocates them to LPs, most of which are family offices, structuring the investments through special-purpose vehicles.

AI Boom Sharpens LP Appetite

The AI boom is also whetting LP appetite for direct and co-investments, PitchBook's Stanford said. "There is a bit of FOMO from those LPs, too. Like, 'All right, if I could get a 15% return from a VC fund investment, well, I could probably get a 70% return, or a 500% return, if I invested in these companies directly.'"

Nick Shekerdemian, founding partner at The Venture Collective, said he sees interest from high-net-worth individuals, fund-of-funds and multifamily offices in addition to single-family offices. Turning to its LP base for co-investment recently enabled early-stage-focused TVC to co-lead the Series B funding round of one of its portfolio companies. TVC contributed between $3 million and $4 million to the round, and its LPs contributed another $7 million to $8 million, he said.

"We wouldn't be able to co-lead a Series B of $50 [million], $60 million just from our early-stage fund," Shekerdemian said.

The shift marks a structural change in how private capital is raised and deployed. As megafunds concentrate capital, emerging managers are effectively converting their LP bases into a source of deal firepower, letting them participate in larger rounds than their fund sizes would otherwise allow. For LPs, the trade-off is higher risk concentrated in fewer companies — a bet that pays off only if the chosen names deliver outsized returns.

This article is for informational purposes only and does not constitute investment advice.