It’s been almost a decade since Omar Darwazah and Kyle Hendrick launched AAF Management and its first fund of $25 million in 2017.
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.
The firm is allocating about 80% of its capital to startups and 20% to emerging funds, blending the two into what it calls a “one-stop capital-formation partner” for founders and fund managers alike.
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So far, the Axis Fund has backed 25 pre-seed and seed-stage venture funds, along with five direct bets on early-stage and growth startups.
“We’ve found that the richest dataset of private-market companies at the earliest stages of their formation over the past decade is accessed only through LP checks in emerging managers,” said Hendrick, the firm’s other general partner.
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