Fund Strategy
How Emerging Fund Managers are Using Co-Investments to Win Deals and LPs
At a Glance
Co-investing allows LPs to participate in individual deals alongside a fund, offering more control, transparency, and alignment.
Emerging managers use co-investments to build relationships with prospective LPs, boost exposure in top deals, and increase check sizes without raising a larger fund.
Done well, co-investing strengthens trust with LPs and founders by showing conviction and offering flexible access to capital.
Clear communication, thoughtful structuring, and alignment of incentives are key to avoiding transactional dynamics.
Sydecar enables fast and compliant co-investment SPVs so managers can top off allocations and bring in value-add capital without added complexity.
Co-investment strategies have gained popularity over the past several years. Co-investing allows LPs to back individual deals alongside fund managers rather than (or in addition to) committing to a blind pool fund. Emerging managers often use co-investments as a way to build relationships with and create value for prospective fund LPs. High-net-worth individuals and family offices, who often back emerging managers as LPs, are particularly drawn towards co-investment opportunities given that they tend to prioritize customized and relationship-based investing more than institutional investments. Co-investment strategies are particularly attractive to investors during periods of macroeconomic volatility because it allows them to deploy capital more slowly and with more control.
We recently hosted an office hours session with Coolwater Capital to discuss the value a co-investment strategy can play for emerging fund managers. The conversation was full of rich insights and tactical takeaways, so we’re sharing an overview along with the full recording with our community. If you’re an emerging manager or syndicate lead who’s looking to expand your investor base and strengthen relationships with LPs, this is for you.
—
Coolwater Capital is an educational community and fund-of-funds for emerging managers. Since launching in 2021, they have:
Sydecar and Coolwater have partnered to provide emerging fund managers with the full-stack resources they need to launch and manage their investment business while setting the foundation for an enduring firm past Fund I.
Why Co-Investing Matters for Emerging Managers
Co-investment strategies have become a core part of the emerging manager playbook. Rather than committing exclusively to a blind pool fund, LPs can allocate to individual deals alongside a manager or layer co-investments on top of their fund commitments.
For emerging managers, co-investments serve several strategic purposes:
Deepening relationships with existing LPs
Creating a low-friction way for prospective LPs to get to know your strategy
Increasing exposure to your strongest deals without changing your fund size or mandate
High-net-worth individuals and family offices, who often back emerging managers, are especially drawn to co-investments. They value more control, the ability to right-size exposure by deal, and a relationship-based approach to manager selection.
During periods of macroeconomic uncertainty, co-investments become even more attractive. Investors can deploy capital more selectively and pace commitments over time, while managers still have a mechanism to lean into their highest-conviction opportunities.
Sydecar and Coolwater Capital have partnered to help emerging managers use co-investments as a competitive advantage, both as a way to serve LPs and as a tool for building an enduring firm beyond Fund I.
Coolwater Capital at a Glance
Coolwater Capital is an educational community and fund-of-funds focused on emerging managers. Since launching in 2021, they have:
$1.5B raised across cohort funds
298 LP-led themed modules
924 1:1 value-added intros made
41 in-person events hosted since 2022
62% funds with diverse GPs across 159 funds
3600+ portfolio companies across funds pre-cohort
2500+ portfolio companies targeted across funds by 2025
83 NPS score rated by GPs
Sydecar and Coolwater work together to give emerging managers both strategic guidance (from the community) and operational infrastructure (from the platform) to launch and scale their investment businesses with confidence.
How Co-Investing Creates an Edge
Co-investment offers distinct benefits for managers, LPs, and founders.
Benefits for Managers
Co-investments allow managers to:
Increase exposure to top deals. You can lean into your highest-conviction opportunities without changing fund size or concentrating a single position beyond portfolio construction limits.
Write larger checks. Co-investment SPVs make it easier to top off allocations and meet a founder’s target round size, which can help you win or protect allocations in competitive rounds.
Align incentives with partners. You can share economics with other funds, syndicates, and value-add angels to reinforce long-term collaboration.
Build trust with prospective LPs. Deal-by-deal access gives potential future LPs a way to get to know your judgment, pace, and communication style before committing to a fund.
Benefits for LPs
For LPs, co-investing offers:
More control. They can dial exposure up or down based on conviction, sector preferences, and liquidity needs.
Additional upside. Existing fund LPs can increase their allocation to the most exciting deals rather than being limited to their pro rata fund exposure.
A clearer view of your judgment. Over time, co-investment deal flow becomes a tangible record of your thesis, sourcing capability, and discipline.
Benefits for Founders
Founders also benefit when a manager runs a thoughtful co-investment strategy:
Larger, more flexible checks. A fund-plus-co-investment SPV is often more compelling to founders than a smaller fund-only check.
Access to additional value-add angels. Managers can bring in operators, domain experts, and strategic angels who may not meet fund minimums but can materially help the company.
A single relationship managing a broader capital base. Founders interact with one lead or core manager, even if there is a broader network behind the scenes.
Who Should Get Co-Investment Access?
A common question for emerging managers is whether co-investment opportunities should only be offered to fund LPs, or if they should be open more broadly.
There is no single right answer, but a few strategies work well in practice:
Fund LP–only co-investments. Treat co-invest rights as a premium benefit of being in the fund. This rewards early supporters and can make your fund more attractive.
Hybrid model. Offer differentiated economics to different groups. For example: fund LPs may receive co-invest opportunities at 10% carry, while prospective LPs or external investors participate at 20%.
Open, but strategic. For managers still raising or planning future funds, selectively offering co-investments to high-potential LP prospects can be a powerful way to build trust and demonstrate your process.
The key is to be intentional. Decide in advance how co-investments fit into your broader capital formation strategy, and communicate that clearly.
Avoiding Transactional One-Off SPVs
One risk with co-investments is that they start to feel like one-off, transactional SPVs rather than a thoughtful extension of your strategy.
To avoid that:
Lead with conviction. When you are investing out of your fund and using an SPV to top off allocation, your commitment is obvious: you already have capital at risk.
Curate opportunities. Do not send every deal to every LP. Offer co-investments that are especially relevant to a particular investor’s interests, risk profile, or portfolio.
Frame it as access, not a sales pitch. Position co-investments as a way for LPs to increase exposure to deals where you already have high conviction, not as a last-minute capital fill.
Stay transparent and proactive. For managers investing only via SPVs, transparency around check size, alignment, and your own commitment becomes even more important.
When LPs understand why you are sharing a specific co-investment with them and see that your own capital is aligned, the interaction feels like a partnership, not a transaction.
Managing the Risk of Coming Up Short
Another challenge: what happens if you secure an allocation from a founder, plan to fill it through co-investment, and then fall short?
That risk is real, and it can damage founder trust if not managed well. A few principles help:
Underpromise and overdeliver. When negotiating allocations, share a conservative range that you are highly confident you can fill, then work to exceed it.
Know your LPs. Over time, track who reliably participates, at what levels, and on what timelines. Use that data to estimate realistic co-invest capacity before you commit to a founder.
Build an interest-gauging process. Learn how to quickly test demand from your network, whether that is through soft-circled indications of interest, structured allocation forms, or small-group calls.
Align expectations with market conditions. Founders may be more patient with a syndication process in slower markets than in hot ones. Be honest about timing and contingencies.
Emerging managers who treat co-investment allocations as a professional obligation build reputations as reliable partners, even when they occasionally have to adjust.
How Sydecar Supports Co-Investment Strategies
Co-investments work best when the operational side feels seamless. The last thing you want is for a high-conviction deal to be slowed down by manual banking, compliance, or document workflows.
Sydecar makes it simple and efficient for venture fund and syndicate managers to form Special Purpose Vehicles (SPVs) and funds by automating banking, compliance, contracts, and reporting. That same infrastructure powers co-investment SPVs, allowing you to:
Stand up co-investment vehicles quickly
Consolidate multiple co-investors into a single line on the company’s cap table
Invite both fund LPs and outside investors into a deal without adding back-office burden
Maintain a clean, auditable record of your co-investment activity
This frees you to focus on what co-investing is really about: building portfolios, strengthening track records, and fostering stronger relationships with limited partners and founders.
Continue the Conversation
Want to go deeper on co-investing strategies for emerging managers?
Listen to the full office hours session with Coolwater Capital: Co-Investing as a Competitive Advantage – Office Hours Recording
See how Sydecar can support your co-investment strategy: Book a demo to walk through how to structure and launch co-investment SPVs alongside your fund.
See How Sydecar Works in Under 2 Minutes
Explore our interactive demo to see how simple it is to launch and manage your next SPV.
Disclaimer: This content is made available for general information purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Sydecar, Inc. (“Company”). By accessing this content, you agree that the information provided does not constitute legal or other professional advice, including but not limited to: investment advice, tax advice, accounting advice, legal advice or legal services of any kind. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Please see here for our full Terms of Service.
Solutions
Legal
Referral Program Agreement
Stay in touch
Subscribe to our newsletter
© 2025 Sydecar, Inc.