What's Happening?
AAF Management, a venture firm backed by Mubadala, has successfully closed its latest fund, the Axis Fund, with $55 million in assets. Founded by Omar Darwazah and Kyle Hendrick, AAF has maintained a strategy of keeping fund sizes small, focusing on a hybrid
model that combines direct startup investments with fund-of-funds investments. This approach allows AAF to invest in emerging managers' first or second funds and promising portfolio companies from pre-seed to pre-IPO stages. The firm allocates 80% of its capital to startups and 20% to emerging funds, positioning itself as a 'one-stop capital-formation partner' for founders and fund managers. AAF's strategy has granted it access to a rich dataset of private-market companies, enabling investments in notable startups like Current, Drata, and Flutterwave.
Why It's Important?
AAF's unique investment strategy is significant as it provides a diversified venture exposure, appealing to institutional investors, especially in the Gulf region, who prefer not to manage numerous direct relationships. By investing in both startups and emerging funds, AAF enhances its ability to identify high-potential companies early in their formation. This approach not only benefits the firm but also supports the growth of startups by connecting them with later-stage capital from AAF's network of limited partners. The firm's success in securing exits totaling nearly $2 billion in aggregate value underscores the effectiveness of its strategy, which ranks among the top decile in terms of net TVPI for its fund vintages.
What's Next?
AAF Management plans to continue leveraging its dual fund type strategy to expand its portfolio and increase its exposure to promising startups. The firm aims to inject startups directly into its network of 45 active venture funds where it holds LP positions, providing instant distribution into their ecosystems. This strategy is expected to enhance AAF's ability to back outliers and achieve significant returns on investment. As the firm continues to bridge Gulf capital with U.S. startups, it may attract more institutional investors seeking diversified venture exposure.
Beyond the Headlines
AAF's approach highlights a shift in venture capital strategies, where smaller fund sizes and hybrid models are increasingly favored for their ability to align GP-LP interests and focus on carried-interest generation. This trend may influence other venture firms to adopt similar strategies, potentially reshaping the landscape of venture capital investments.
