Seeding

Seeding sits between “LP commitment” and “business-building partnership.” The seed investor is underwriting not only a fund strategy, but an asset-management franchise. Institutionally, the diligence is about alignment and whether the economics create the wrong incentives—especially around AUM growth, fee maximization, or fundraising behavior.

From an allocator perspective, seeding affects:

• manager independence and governance,
• economics and long-term value capture,
• future fundraising dynamics, and
• strategy integrity (avoiding AUM-driven drift).

How allocators define seeding risk drivers

Allocators segment seed deals by:

• Structure: anchor LP, revenue share, GP stake, management company equity
• Economic load: how much fee/carry or revenue is diverted and for how long
• Control rights: governance, vetoes, and influence over strategy and operations
• Incentive alignment: whether the manager is pushed toward AUM growth over performance
• Fundraising constraints: whether seed terms deter future LPs or complicate disclosures
• Exit and permanence: buyback rights, termination provisions, and economics sunset terms
• Evidence phrases: “seed investor,” “revenue share,” “GP stake,” “management company equity,” “anchor economics”

Allocator framing:
“Does this seed structure align long-run incentives and support a durable platform—or does it load the manager with economics and control that distort performance and future fundraising?”

Where seeding appears in allocator ecosystems

• platforms that seed emerging managers as a strategy
• family offices and institutions building manager ecosystems
• strategic partners that exchange early capital for economics and long-run access

How seeding impacts outcomes

• can accelerate platform maturity by funding operations, compliance, and team build
• can reduce manager flexibility and create future fundraising friction
• can incentivize AUM growth and style drift if economics are poorly designed
• can create durable alignment when terms sunset and governance is balanced

How allocators evaluate seed deal quality

Conviction increases when:

• economics are fair, transparent, and time-bound (sunset mechanisms)
• governance rights protect both parties without undermining manager independence
• terms do not force AUM growth at the expense of underwriting discipline
• disclosures are clean and future LPs are not structurally disadvantaged
• buyback/termination provisions are clear and reasonable

What slows allocator decision-making

• opaque economics and unclear revenue share waterfalls
• control rights that compromise fiduciary independence
• terms that create perception of conflicts for future LPs
• long-duration economics that materially reduce manager long-run franchise value

Common misconceptions

• “Seeding guarantees access to top managers” → access depends on manager quality and durability, not seed terms alone.
• “Revenue share is free money” → it can distort manager incentives and fundraising strategy.
• “Seed terms don’t matter to later LPs” → later LPs care deeply about alignment and disclosure.

Key allocator questions

• What is the structure and total economic load over time?
• What governance rights exist and how do they affect independence?
• How do terms sunset, and can the manager buy back economics?
• How do seed terms affect future fundraising and LP perceptions?
• What prevents AUM-driven style drift under this structure?