Mubadala-Backed AAF’s Winning Strategy for Hot Startup Deals
▼ Summary
– AAF Management launched in 2017 and has grown to roughly $250 million in assets across four funds, including its latest $55 million Axis Fund.
– The firm intentionally keeps its fund sizes small to maintain alignment between general and limited partners, avoiding the focus on management fees over carried interest.
– AAF uses a hybrid strategy, investing 80% of capital directly in startups and 20% in emerging funds to access a broad range of early-stage companies.
– This approach provides exposure to hundreds of venture-backed companies and helps founders connect with later-stage capital through AAF’s network of venture funds.
– AAF’s strategy has led to strong performance, with previous funds ranking in the top decile for returns and including successful exits totaling nearly $2 billion.
Since its founding in 2017, AAF Management has charted a distinctive course in the venture capital world, deliberately maintaining smaller fund sizes to prioritize alignment with investors and maximize returns rather than chasing rapid asset growth. This disciplined approach has enabled the firm to build a strong reputation and deliver impressive performance while focusing on a hybrid investment model that blends direct startup funding with strategic stakes in emerging venture funds.
The firm recently closed its fourth vehicle, the $55 million Axis Fund, bringing total assets under management to approximately $250 million. Unlike many competitors who aggressively scale their funds, AAF’s partners Omar Darwazah and Kyle Hendrick believe that smaller funds foster better alignment between general and limited partners. Darwazah explains, “Managing a $50 million fund operates very differently from running a $500 million fund. We’ve observed that oversized funds can shift the focus toward management fees rather than generating carried interest, which isn’t the game we want to play.”
AAF’s strategy incorporates elements of a fund-of-funds approach, deploying capital both into promising startups and into the early funds of new investment managers. With its latest fund, the firm intends to support emerging managers raising their first or second funds, typically those under $50 million, while also investing directly in standout companies from pre-seed through pre-IPO stages. Roughly 80% of the capital is earmarked for startups, with the remaining 20% directed to emerging funds, creating what the firm describes as a “one-stop capital-formation partner” for founders and fund managers alike.
To date, the Axis Fund has invested in 25 pre-seed and seed-stage venture funds and made five direct investments in early-stage and growth companies. Hendrick notes, “We’ve discovered that the most valuable early-stage private market data over the past decade is accessible primarily through limited partner commitments to emerging managers.” This dual strategy has given AAF early stakes in companies like Current, Drata, Flutterwave, Jasper, and Hello Heart. Additionally, through its fund investments, the firm gains indirect exposure to other high-profile names such as Mercury, Deel, Retool, and AI innovators like Motion, Decagon, and Eleven Labs.
Through its underlying fund managers, AAF estimates it has exposure to around 800 venture-backed companies founded between 2021 and 2025. Rather than offering intensive operational support, the firm concentrates on linking founders with later-stage capital from its extensive network of limited partners. Hendrick emphasizes, “Where we bring the most value early in a founder’s journey is through our venture network. We can immediately connect you with 45 active venture funds where we are limited partners, providing instant distribution into their ecosystems.”
Simultaneously, AAF acts as a bridge for institutional investors, particularly those from the Gulf region, who seek diversified venture exposure without the complexity of numerous direct relationships. Backers of the fourth fund include Abu Dhabi’s Mubadala, various U.S., European, and MENA family offices, general partners from top U.S. asset managers, a multibillion-dollar U.S. venture firm, and a publicly traded company.
The partners bring complementary backgrounds to the firm. Darwazah, with experience in Middle Eastern corporate finance and private equity, has long connected Gulf capital with U.S. startups. Hendrick, a former entrepreneur who also worked at the UAE Embassy in the U.S. and at an Abu Dhabi family office, contributes an operator’s perspective to AAF’s earliest investments.
Across its four funds, AAF has completed 138 direct investments and backed 39 unique emerging managers. The firm has recorded 20 portfolio exits with a combined value approaching $2 billion. These exits include companies such as TruOptik, MoneyLion, Even Financial, Portfolium, Prodigy, BetterView, Lightyear, Trim, HeyDoctor, and Medumo. At least six publicly traded firms, among them TransUnion, Giant Digital, GoodRx, and Affirm, have acquired AAF’s portfolio companies.
According to data from Cambridge Associates and Carta, several of the firm’s earlier fund vintages rank in the top decile based on net total value to paid-in capital. Darwazah summarizes the firm’s philosophy: “Our strategy helps us distinguish signal from noise and raises our chances of backing outliers, funds that deliver strong returns, companies that achieve 10x cash-on-cash multiples, and seed investments that mature into unicorns.”
(Source: TechCrunch)
