Thread by @fdestin

1/ Some specific insights for Venture Fund Managers (GPs) from a world class LP (our friends at @TTCP_SF) on managing through the crisis. #openLP

Inside Baseball alert!

2/ Easing-in with a macro observation:

Best vintages in history were built in last crisis, even if we assume exits delayed 2-3 years

Right now seeing 0-15% decrease in TVPI with 2010-2013 funds most exposed

3/ LP are working HARD to assess portfolios. Avoid surprises, be transparent ... LPs will understand!

LPs need to:
- understand risks to performance
- get detailed guidance on downside
- precisely budget capital calls
- get predictions on liquidity

4/ Even large LPs may need liquidity

Pushing distributions down to investors is helpful to *everyone* - generate liquidity - don't hold public stocks.

Consider foregoing recycling (typically 20%) in favour of liquidity. Re-ups in your next fund may depend on distributions.

5/ Reach out and understand the health of your LP base.

Is the crisis impacting overall allocation to VC, are going forward commitments on the current fund at risk? What about your next fund?

Have empathy and understand each situation.

6/
Example 1 - Sovereign Wealth fund in the Middle East, not just impacted by CV19 but also by the massive drop in oil prices.

Example 2 - endowments may suffer from denominator effect, massive volatility in public market and ongoing cash-flow obligations.

7/ On the Secondary side:

LPs looking to sell non-core commitments (25% or less funded) to release obligations OR to get out of clear non go-forward positions (fund culled)

LPs are selling out older TVPI positions where value has crystallized

No distressed pricing yet

8/ Good news! The secondary sales are not representative of LP views on the market - most LPs are fully recognising the opportunity and looking to double down in the best and generate or release liquidity to invest more!

9/ VC fund formation is still brisk. "Deals that make sense, still make sense".

Premier sponsors without "wants" (no team changes, still hungry) are just fine.

Firms taking advantage of the crisis (value buyers, investors in "fallen angels including public) have traction

10/ Just like for startups - world of haves and have-nots. Lean times ahead for emerging managers for sure, except for "hot" new managers not burdened by existing portfolios. Tough to get attention and get on the list. As expected...

11/ Opportunity Funds are attractive: "double down on winners at attractive prices". Shorter time to exit and lower loss ratios.
Advice:
- 8/10 positions
- no fees or low fees on invested only
- 10% carry
- keep fund proportional to original fund (e.g. 50%)
- clear conflicts

12/ Fund Finance
- Deals getting done but slower - more LP diligence
- GPs are not hoarding cash
- Drawdowns are not increasing much currently (5%)
- Bankers are coming at you for more money (floor on rates, higher rates)

13/ Finally on process
- Great time to build relationships - LPs have time!
- Able to meet full investment teams which NEVER happens

But you're unlikely to get over the line in most cases -- this is relationship building!

Thank you @TTCP_SF 👏