How tiny Mubadala-backed AAF is winning VC deals in some of the hottest startups | TechCrunch

"Rather than racing to dramatically increase their assets under management like many funds have in recent years, the partners have intentionally kept their fund sizes small, even as their reputation and returns have grown. Their latest vehicle - a $55 million early-stage hybrid fund, dubbed the Axis Fund, that recently closed - brings the Washington-based venture firm's total assets to roughly $250 million across four funds."

"The firm raised a $39 million Fund II in 2021 and a $32 million fund-of-funds investment vehicle in 2017 for a select group of its limited partners. "Running a $50 million fund is very different from running a $500 million fund," general partner Darwazah said in an interview with TechCrunch. "We've seen that naturally large fund sizes can disrupt GP-LP alignment as it becomes a function of management-fee generation versus carried-interest generation, and that's not a game we want to play.""

"Unlike typical VC firms that invest directly into startups, AAF is adopting elements of a fund-of-funds model where it invests part of its capital into a portfolio of emerging funds in addition to backing startups. With this fourth fund, AAF plans to invest in emerging managers' first or second funds (typically under $50 million) and their most promising portfolio companies from pre-seed to pre-IPO, the partners said."

AAF Management maintains deliberately small fund sizes to preserve GP-LP alignment and avoid management-fee driven incentives. The firm raised a $55 million Axis Fund, bringing total assets to roughly $250 million across four funds, including a $39 million Fund II and a $32 million fund-of-funds vehicle. The Axis Fund operates as a hybrid, allocating about 80% to startups and 20% to emerging funds. The firm targets emerging managers' first or second funds (typically under $50 million) and invests in promising portfolio companies from pre-seed to pre-IPO, backing numerous pre-seed and seed-stage venture funds and direct startup bets.

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