Cherryrock Capital’s $172M Fund Targets Niche in AI-Dominated VC Market

1. THE SEAMLESS LINK (Flow Rule)
This deliberate focus on overlooked segments and a measured deployment pace sets Cherryrock apart in a venture capital ecosystem increasingly defined by AI-centric mega-rounds and a drive for rapid capital deployment. The fund’s strategy is designed not only to capitalize on promising but undervalued opportunities but also to navigate a shifting regulatory and market landscape.

2. THE STRUCTURE (The ‘Smart Investor’ Analysis)

The Contrarian Capital Allocation

Cherryrock Capital’s $172 million Fund I, which closed in January 2025, adopts a starkly different approach compared to the broader venture capital market. In an era where AI companies are commanding record-breaking mega-rounds—accounting for 64% of all VC deal value in 2025 [37]—Cherryrock targets Series A and B software companies led by “underinvested entrepreneurs.” This focus deliberately sidesteps the hyper-competitive AI gold rush, aiming instead to identify foundational potential in companies that may not fit the typical Silicon Valley mold or possess the exponential growth curves demanded by larger funds. The fund’s limited partners include major institutions like JPMorgan Asset Management, Goldman Sachs Asset Management, MassMutual, and Pivotal Ventures, indicating strong institutional confidence in this niche strategy. [19, 20, 21, 23, 27]

Market Dynamics & Portfolio Strategy

The venture capital landscape in 2025 and projected into 2026 is characterized by a polarization: massive AI mega-rounds and a tightening market for traditional small-to-medium VC deals. [35] While average venture deal sizes have increased to approximately $20.14 million in 2025 [37], Cherryrock’s strategy of writing smaller, concentrated checks (ranging from $6-10 million) within its Series A and B focus aims for deeper engagement and support. The firm has already made significant investments in line with its thesis. It co-led the $30 million Series B round for Coactive AI, a multimodal AI infrastructure provider for the media and entertainment sector, alongside Emerson Collective. [3, 6, 7, 8, 19] Additionally, Cherryrock led the $16 million Series A round for Vitable Health, a company providing accessible primary care-based health insurance for hourly workers, a segment often overlooked by traditional insurance models. [1, 5] These investments highlight Cherryrock’s commitment to backing companies that address critical needs and demonstrate strong product-market fit, even if they are not in the most heavily funded AI categories. The average AI check size in early 2025 was $26.7 million, significantly higher than the $4.6 million for other industries, illustrating the scale of AI deal-making that Cherryrock is consciously differentiating itself from. [37]

Regulatory Tailwinds and Operational Philosophy

Cherryrock’s emphasis on “underinvested entrepreneurs” also positions it advantageously with the upcoming California Diversity Reporting Law. Set to take effect with initial filings by April 1, 2026, this law requires VC firms with a California nexus to report demographic data on their portfolio company founding teams. [11, 12, 14, 17, 18] For Cherryrock, which already prioritizes and tracks investments in diverse founders, compliance is integrated into its operational framework, turning a potential regulatory hurdle into a transparency advantage. Brown-Philpot’s operating philosophy is pragmatic; she acknowledges that “most companies don’t go public, they do get acquired,” a refreshingly realistic view in an industry often fixated on IPOs. [19]

The Forensic Bear Case

While Cherryrock’s focused strategy offers a distinct advantage, inherent risks exist. A concentrated portfolio of 12-15 investments, characteristic of its approach, means that a few underperforming companies could disproportionately impact overall fund returns. [19, 20] Furthermore, the slower deployment pace, while deliberate, could mean missing out on fast-moving market opportunities, particularly in the AI sector where valuations can escalate rapidly. The very nature of targeting “underinvested” founders, while strategic, also implies these companies may face greater inherent challenges in scaling or achieving rapid product-market fit compared to those already in the mainstream VC pipeline. The broader market’s polarization, with mega-rounds dominating AI and mid-market deals potentially shrinking, could also present challenges for Cherryrock’s portfolio companies in securing later-stage growth capital if they do not fit the high-growth AI narrative. The media and entertainment sector, for instance, is rapidly integrating AI, which could bifurcate company valuations based on AI adoption, potentially placing companies without significant AI integration at a disadvantage. [24, 36]

3. THE FUTURE OUTLOOK
Stacy Brown-Philpot’s priority for 2026 is “actively deploying capital” into Series A and B companies that have demonstrated product-market fit. [Original Source] Her strategy is rooted in the belief that “overlooked and underestimated teams are creating companies at an unprecedented pace” and that access to capital and strategic expertise can unlock significant value. [23] By adhering to its disciplined, niche investment thesis, Cherryrock Capital aims to generate above-market returns for its limited partners by identifying and nurturing the next generation of growth-stage companies in traditionally underserved segments of the software market.