Fund Evaluation Framework

Introduction

Below we present an evolving framework for how we evaluate emerging managers at The Side Letter. It is not a universal model for venture, but a unique reflection of how we think about manager quality, edges, and fund potential after seeing thousands of funds.

Our backgrounds have exposed us to countless investing styles, memos, and mental models from both LPs and GPs. This taught us two things: transparency accelerates learning, and the best investors develop clear heuristics for evaluating opportunities. We built this framework to open-source how we approach emerging managers.

We're sharing this for two reasons. First, very few LPs publicly share how they structure their memos or evaluate emerging managers. Second, GPs benefit from understanding how allocators build conviction. Our hope is that this helps both groups sharpen their thinking.

Fund Evaluation Structure

• Fund Strategy
• Gravitational Pull
• GP DNA
• Risks
• Core Edges
• Fund Potential

The key question we seek to answer for each featured fund is:

Why does another venture fund need to exist?

With 4,000+ early-stage firms in existence—hell, we even heard one LP cite 8,000 VC firms—the right to exist question has taken on increased importance for capital allocators. At The Side Letter, we don't just ask this question—we turn it into a math problem.

Fund Strategy

Can this fund 5x in 10 years?

To reach conviction that a fund is truly high-potential, we need to see a realistic path to a 5x return. A fund must operate in markets where the math of success is not just possible, but likely. Hitting this top decile benchmark requires excellence across our entire framework.

Let's break it down: imagine a $100M entertainment tech fund with a 10% ownership target and no reserves, facing 70-80% dilution by exit. To 5x the fund, it needs to generate $500M gross, requiring an exit enterprise value of around $20B with roughly 2.5% ownership at exit. Given the power law of returns, this often means one company must account for most of the gains—reaching a market cap of $16B.

Unpacking this further, we're looking at whether a given market has the potential to produce a company capable of an 11-figure valuation in the next decade? If the answer is no, conviction becomes hard to reach.

The Basics

• What is this fund's thesis?
• Is there a secret underpinning the strategy?
• What is the approach to portfolio construction?

GP DNA

At The Side Letter, we aim for a more narrative-driven, human approach to memos. We believe the best insights come from capturing context, story, and nuance that exists outside of the boundaries of pure metrics. And you'll notice we intentionally prioritize that in our writing. Venture capital is inherently a people business. We want to understand the person (or persons) behind the fund.

• What's their 'why'?
• What makes them memorable?

We believe the best GPs have a history of outlier behaviors and accomplishments. Entrepreneurship, ambition, and contrarian thinking, in their truest sense, is often exhibited early on, not just at the time of them starting a new fund. While past performance isn't an indicator for future results, we'll look into the GP's past to highlight key inflection points, or accomplishments.

As an example, one of our favorite questions to ask ourselves is:

What has this GP done with current or past job titles that no one else with that job title has ever done before?

Core Edges

We believe every fund must be evaluated on three core edges: sourcing, picking, and winning. Evaluating these edges illuminates why a given person, or team, is uniquely capable of executing on its fund strategy.

Along with many of our institutional colleagues, we're believers that edges don't work in isolation; any great fund must spike in at least 2 of the 3 to have a chance to grow into an institution.

Sourcing: How does this fund find great opportunities?

Proximity to top founders is table stakes for the funds we feature. Given the sheer number of firms in the market, elite sourcing isn't just about access—it's about consistently spotting and attracting high-potential opportunities. We look beyond deal flow volume to explore second-order questions such as:

• Does the GP fish in unique, differentiated pools?
• How does the fund find hidden gems that others miss?
• Is there a sourcing advantage positioned to compound over time?

Picking: How does this fund 'pick' the companies it invests in?

Picking showcases a GP's taste and process. The best pickers are artisans. In thinking of picking as an edge, we consider investment track record (outputs) and repeatability of process (inputs):

Winning: Why do great founders want this fund's money?

Top funds have an answer for why the best founders want to work with them. While the answer is often a combination of value-add and brand, we believe the best GPs also have a tangible 'unfair advantage', e.g., some value beyond simply capital.

If we were to bucket these unfair advantages into categories they might be:

• Audience
• Domain expertise
• Structural advantage
• Network
• Investor sophistication

Gravitational Pull

Because venture returns are governed by the power law, our goal is to highlight funds with the potential to be truly exceptional—anything less falls short of our goal.

Drawing from physics (F = mass × acceleration), we've come to believe that funds truly destined for greatness exhibit what we call 'gravitational pull'.

Unfair Advantage

A fund's unfair advantage is its unique edge in the market at time t=0, or today—the distinct strength that positions it ahead of the competition right from the start. It is the culmination of their lived experiences, distance traveled, expertise and scar tissue they've amassed over the years. In many ways, the culmination of the lessons earned on their own, or on someone else's dime.

Enduring Coefficient

The enduring coefficient (t=n, in other words, the future) is a force multiplier. Every vector has a magnitude and direction. The enduring coefficient is the magnitude of how big can this firm be. It amplifies a fund's initial unfair advantage, helping the fund to compound in strength over time.

A strong enduring coefficient helps us see how a fund can transform its current strengths into sustained market dominance. Anything in isolation that cannot be replicated by the fund manager doesn't count, whether it be a single viral tweet, or hosting an event covered by the NY Times. We're looking for advantages that are repeatable and capable of scaling either in quantity or quality, but ideally both.

Pulling it Together

When a strong unfair advantage meets an equally strong enduring coefficient something magical happens—gravitational pull. A force so strong that it grabs the startup ecosystem's attention and makes it impossible to ignore.

"The misfits. The rebels… The people who are crazy enough to think they can change the world, are the ones who do."

It's the First Round Capitals back in 2005 starting with a secret (that seed investing should be institutionalized) and inventing the idea of portfolio as a community. It's the a16z's who start with storied operational track records and then re-invent the scale of platform services. It's the General Partnership's, who start with stellar track records, but go further to reimagine themselves as service provider, versus capital allocator.

Funds with gravitational pull are more than just good, they're inevitable. Emerging funds have this same opportunity—to carve out their gravitational pull by redefining what value looks like in their markets. Most investors fight to get a seat at the table. But in this investing game, that's not enough. The best funds don't just have a seat at the table—they are the table. That's what being inevitable means. That's iconic. That's gravitational pull.

Risks

Let's be clear: every fund has associated risks and we're not here to sugarcoat. Whether it's thesis risk, unproven strategies, or potential blind spots in the team, these are the factors that can make or break a fund's trajectory.

We'll call out a few risks not to spook you, but because great investors confront risks head-on. The best GPs don't just acknowledge challenges—they use them as fuel to refine, adapt, and dominate.

Fund Potential

In our sixth and final section, we'll summarize what stands out to us about the fund, the portfolio construction model, and why we believe it has the potential for top decile returns (i.e, 5X plus).

Separately, when we consider an investment, we independently rank every fund across a set of core dimensions before any discussion. This helps us surface disagreement, avoid anchoring, and get a sharper view of a manager's strengths and risks. We won't go into that full methodology here. Some parts of the process are better kept proprietary.