Years ago, the two authors of this article worked at a long-volatility, gamma-arbitrage hedge fund. Marketed as that, it raised roughly $400 million. When one of the partners had a “eureka” moment and started calling it insurance, we raised $6 billion.
The strategy, the performance, and the team, never really changed. The story did, giving allocators a solid reason to add us to their portfolio.
You have to tell a good story, and you have to have a good story to tell.
As it was then, it is now, even more so: This is the hardest market for raising a venture fund in a decade. US venture funds raised some $66 billion in 2025, the lowest total since 2018 Only 537 funds closed, 30% of the 2021 peak. What money did move went to the top: Andreessen Horowitz’s $15 billion close in January 2026 alone accounted for more than 18% of all new venture capital commitments since the start of 2025
Impact managers have had it worse: PitchBook found that private-market impact fundraising fell by nearly half between 2022 and 2024. Climate, until recently the hottest corner of impact, has fallen furthest: climate-specialist VC funds raised more than $10 billion in 2021, and by mid-August 2026 only six had closed. Climate specialists are expected to raise less than $1 billion in 2026, the weakest showing since 2015.
This is neither a temporary phenomenon, nor surprising: VC was a saturated asset class, with everyone who ever made some money, or who had a rich relative who made some money and was willing to invest, starting a fund. The guy from Entourage, a couple of Real Housewives, your endodontist…you get the drill. Beyond the low barrier to entry, the reluctance of limited partners, or LPs, to allocate their hard-earned capital is easy to explain: the venture model has largely failed to deliver on its promise of better than S&P 500, uncorrelated returns.
In 2012 the Kauffman Foundation looked back on 20 years of its own venture portfolio and found the asset class had not meaningfully beaten public markets since the late 1990s. Since 1997, it found, less cash had come back to investors than they had put in. Kauffman blamed LPs as much as general partners, or GPs, noting that investors “succumb time and again to narrative fallacies.”
Impact managers face the same brutal arithmetic, compounded by the added challenge of justifying social returns alongside financial ones. While many promise market-rate returns and measurable impact, few successfully deliver even a single exit much less market-rate returns. And portfolio companies are burdened with extensive reporting to validate impact. If standard commercial funds struggle to return capital, an impact fund making identical equity investments will face even harsher skepticism.
After eight straight years in which capital calls outran distributions, investors want their money back, and they are moving toward strategies that return it: private credit, secondaries, structures that pay out along the way.
Our firm, WhiteLabel Impact, which advises mission-driven investors, suggests that fund managers who wish to raise venture funds in this market start by connecting with limited partners on three dimensions that we call the three P’s:
- Philosophically aligned: Does the fund express a view LPs hold?
- Pragmatic: Is the story credible and well told?
- Proven success: Can the team show why they are capable of generating returns?
Philosophical: Give LPs a view to express
Sell the theory of change: Our gamma arbitrage, er, insurance, fund proves the point: LPs have a view of how the world works and will seek a manager to express it. Today, many of them hold a new perspective: that the venture Power Law — a VC-trope that says a few winners drive most of a fund’s returns — is a lottery few managers win, and that their capital should work harder and come back sooner.
For impact managers, this is even more amplified: impact-oriented LPs don’t want to leave a sea of detritus amidst a couple of unicorns. Impact investors shouldn’t be in the business of crushing dreams. A deck that asks them to buy the same old story starts at a disadvantage.
Stress-test it before an LP does. A theory of change is a causal chain, and every link rests on an assumption. For example:
- The constraint: is the capital you provide what actually holds your market back?
- The lever: is your instrument the one that moves the outcome you promise?
- Additionality: is someone doing what you are already doing, and if so, how are you doing it differently?
- The upside: who keeps the value when the company grows or sells?
Take a common pitch: rural America gets about 1% of venture dollars, so a rural venture fund will close the gap and create jobs. Each link invites a question. Rural firms often lack talent, customers and working capital. Venture-backed companies are built to grow revenue far faster than headcount, while the businesses that make, grow and fix things carry the bigger jobs multiplier. A successful exit often sells the company, and its jobs, to a buyer somewhere else.
Match the instrument to the problem. Money has a time value, and return should compensate for risk. Equity only works when the outcome is outsized or arrives quickly. A10-year fund demands both.
For companies building plants and winning industrial customers, the fit is poor. During the Cleantech 1.0 boom, investors put more than $25 billion into cleantech from 2006 to 2011 and lost over half of their investment, mostly due to hardware and materials companies that took longer to scale than VCs expected.
The standard VC follows this playbook: First, put in a little money. Then, ask the company to get market traction (i.e., folks actually using its products). These first revenues don’t have to be profitable, but they should be multiplying exponentially, regardless of the effect on net income. If the company builds it, and folks come, it gets more money. This goes on until the company goes public or gets sold. There is rarely a Warren Buffett-like view that these companies, at some point, should generate self-sustaining free cash flow. Indeed, value is discouraged over hockey-stick-like revenue growth.
Bringing climate tech solutions to market involves extended development cycles. As a result, portfolio companies at the time lacked the client traction required by VCs to unlock subsequent funding rounds for R&D and operational expansion. This unfortunate dynamic starved these businesses of critical capital when they needed it most – fulfilling customer purchase orders (a key precursor to the revenue growth VCs prioritize). .
The managers LPs currently favor offer flexibility across the capital stack: debt, equity and structures in between, fitted to how a business actually grows and pays back.
Pragmatic: Tell a credible story
Build a deck that respects the reader:Use the Guy Kawasaki 10-20-30 rule (10 slides, 20 minutes presentation, no less than 30 point type). It’s a winner: problem, solution, what’s proprietary, business model, go-to-market, competition, team, financials, use of funds. Form follows function.
Lead with cash:Given where LP attention has moved, show distributions to paid-in capital, or DPI, first, then total value to paid-in capital (TVPI) and IRR by vintage against a named benchmark and a public-market equivalent (yes, another acronym, PME). Never mix a multiple on invested capital, or MOIC, figure with a TVPI quartile. LPs who have lived through a decade of unrealized gains will check.
(TVPI, for the uninitiated, divides a fund’s distributions plus the current value of its remaining holdings by the capital investors have paid in. It lets LPs compare managers across vintages, though much of it rests on the manager’s own unrealized marks, which is why LPs increasingly pair it with DPI, the cash actually returned).
Consider moving up the capital structure: Non-digital companies need inventory financing, purchase order financing, receivables financing, equipment financing, working capital, revolving credit, mezzanine debt, project financing, the list goes on. Don’t just focus on equity.
Use terms to signal alignment:Kauffman found the typical GP commits just 1% of a new fund’s capital, and it urged LPs to insist on preferred returns before carry. A meaningful GP commitment, a hurdle, a disclosed carry split and no fees layered on fees all show LPs that a manager has skin in the game..
Make the raise look inevitable: Name the anchor. Show the pipeline and portfolio construction, check sizes, target ownership, reserves, and how and when capital comes back. If part of the fund depends on a designation or program approval, explain what happens if it slips.
Sweat the details: Inconsistent numbers, undefined roles, and a typo in the term sheet each look small but they compound. LP counsel will find all of them.
Proven: Show you are capable of generating returns
Answer “why this manager?:” The VC’s mantra for picking portfolio companies: “Bet the jockey not the horse.” Same holds true if you want to be a venture capitalist. LPs are betting on you. Show them why they should put their fiduciary trust in you. Commitment is paramount. A marquee name who looks part-time invites diligence questions and suggests borrowed credibility. And, for God’s sake, celebrities do not sell.
Derisk:Show a track record. LPs want the deals the team actually led. Who sourced it? Who sat on the board? Who negotiated the exit? A slide of logos from a prior firm proves the team has experience. LPs will call the old firm, the founders and the co-investors, and they will find out who did the work. First-time managers have options here. An angel portfolio, a corporate development record or years running an operating business can count,provided the numbers are documented and connected to the fund’s strategy.
Show the team will stay together.LPs are signing up for 10 years or more, and many have watched partnerships tear apart over carry, and credit. Spell out who owns the management company, how carry vests and what happens when a partner leaves. Key-person clauses exist because this goes wrong often enough to write into every limited partner agreement (LPA).
Build the back office before you need it:Operational due diligence sinks more raises than managers expect. LPs want a named fund administrator, auditor, and fund counsel, a written valuation policy, and a second signature on every capital call. A brilliant investor keeping the books in a spreadsheet is a risk most LPs will simply decline.
Prove the impact, too:Impact LPs will often ask for the same evidence on the mission side: what you measured last time, what changed and whether you reported the misses. Meet their expectations, but keep it proportionate. A 40-metric framework mostly proves the portfolio companies had to fill out a 40-metric framework.
The story and the theory
Our “insurance” fund taught us the right story can multiply a raise by 15. It also taught us the story only works when the theory underneath holds (we did have an incredible team, which included someone who was referenced favorably in When Genius Fails as outsmarting the ‘Geniuses’ ).
Most LPs, in our experience, are really, really smart. They read a lot. They have fancy degrees, often including the CFA designation, and genuinely are deeply interested in what they do. Appeal to that. LPs back managers with a clear thesis, the right tools for the job and a credible path to getting their money back.
Steve Zausner and Marlon Osbourne are partners at WhiteLabel Impact, which advises mission-driven enterprises and fund managers on capital raising, M&A and strategy.
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
