How emerging Mubadala-backed AAF is winning VC deals in some of the hottest startups

Almost an era has passed Omar Darwaza And Kyle Hendrick on AAF Management And its first funding in 2017 was $25 million.

Instead of racing to dramatically increase their assets under management like many funds have done in recent years, the partners have deliberately kept their fund sizes small, even as their reputation and returns have grown.

Their latest vehicle — a $55 million early-stage hybrid fund, called the Axis Fund, which recently closed — brings the Washington-based venture firm’s total assets across four funds to about $250 million. The firm has 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 Darwajah said in an interview with TechCrunch. “We found that inherently large fund sizes can disrupt GP-LP alignment because 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 in startups, AAF is adopting elements of a fund-of-funds model where it backs startups as well as invests a portion of its capital in a portfolio of emerging funds.

With this fourth fund, AAF plans to invest from pre-seed to pre-IPO in emerging managers’ first or second funds (typically under $50 million) and their most promising portfolio companies, the partners said.

The firm is allocating about 80% of its capital to startups and 20% to emerging funds, combining the two into what it calls a “one-stop capital-formation partner” for founders and fund managers alike.

To date, Axis Fund has backed 25 pre-seed and seed-stage venture funds, along with five direct bets on early-stage and growth startups.

“We found that the richest dataset of private-market companies in the early stages of their formation is accessed only through LP checks among emerging managers over the past decade,” said Hendrick, the firm’s other general partner.

This dual fund type strategy has allowed AAF access to many promising startups. The firm is a primary investor the current, wired, Flutterwave, JasperAnd hello heart.

Similarly, through funds where it is an LP, AAF holds indirect exposure to other unicorns, including Mercury, Deal, Retool and more recently AI firms such as speedDecagon and Eleven labs Leonis Capital, Wayfinder Ventures and Quiet Capital (the firm founded by Lee Linden, who is exploring a similar two-pronged strategy with former founding fund GP Brian Singerman for a new fund)

The eight-year-old venture firm claims to have exposure to around 800 venture-backed companies launching between 2021 and 2025 through these underlying managers.

With this approach, AAF focuses less on hands-on help with recruiting or product for portfolio companies and more on connecting founders with later-stage capital from its limited network of partners. This is a service that becomes especially helpful when a startup starts raising growth rounds.

“I would say where we typically add the most value to a founder’s journey, especially in the early stages, is through our venture network,” Hendrick said. “That means we can inject you directly into the 45 active venture funds where we’re LPs. It’s instant distribution into their ecosystem.”

At the same time, AAF acts as a conduit among institutional investors – particularly in the Gulf – who often prefer exposure to diversified ventures rather than managing dozens of direct relationships.

Abu Dhabi’s Mubadala, several US, European and MENA family offices, GPs of leading US asset managers, a multi-billion-dollar US venture firm and a publicly traded company are backing this fourth fund, the firm said.

Darwazah and Hendrik came to the initiative from different backgrounds. Darwaza, who previously worked in corporate finance and private equity in the Middle East, has spent years bridging Gulf capital with US startups. Hendrick, a former entrepreneur who worked at the UAE embassy in the United States and at a family office in Abu Dhabi, brings an operator’s lens to AAF’s early contracts.

Across its four funds, AAF has made 138 direct investments and backed 39 unique emerging managers, with 20 portfolio exits totaling nearly $2 billion.

These exits include TruOptik, MoneyLion, Even Financial, Portfolium, Prodigy, BetterView, Lightyear, Trim, HeyDoctor, and Medumo. At least six publicly traded companies have acquired his portfolio companies, including TransUnion, Giant Digital, GoodRx, and Affirm.

According to Cambridge Associates and Carta data, the firm said it has added to some of its previous fund vintage rankings in terms of net TVPI for their respective vintages.

“Our strategy allows us to identify the signal from the noise and increase the likelihood of backing outsiders – fund returners, 10x cash-on-cash companies, and seed to unicorn investments,” said Darwaza.