1/ Sharing one LP’s perspective (family office w/ 16 fund portfolio, look at 5+ new funds/week), in case helpful, esp. for emerging managers:
• Pre-fundraising
• GP commit
• LP decision making & co-invest
• Post-close
(Yes, big 🧵time bc I’m too lazy for a blog post).
• Pre-fundraising
• GP commit
• LP decision making & co-invest
• Post-close
(Yes, big 🧵time bc I’m too lazy for a blog post).
2/ Disclaimers:
• All perspective informed by my exp both investing in funds & collaborating with other family offices but it’s still n =1 (treat accordingly)
• I spend ~25% of my time on funds & 75% on direct startup investments – not an expert, just sharing my knowledge 🤗
• All perspective informed by my exp both investing in funds & collaborating with other family offices but it’s still n =1 (treat accordingly)
• I spend ~25% of my time on funds & 75% on direct startup investments – not an expert, just sharing my knowledge 🤗
3/ Pre-fundraising: Quantum?
Fund size = defined by your strat (stage, lead/collaborative, check size etc.); most EMs start w/ collaborative checks = more flexibility
Don’t be afraid to start small – I know great EMs who started w/ $1-5M fund I & built track record from there
Fund size = defined by your strat (stage, lead/collaborative, check size etc.); most EMs start w/ collaborative checks = more flexibility
Don’t be afraid to start small – I know great EMs who started w/ $1-5M fund I & built track record from there
4/ Pre-fundraising: Type?
Raising a fund vs. building a firm are v diff things
Raising a fund: rolling funds can be great esp if (1) have following & (2) still testing the VC thing
Building a firm (+want institutional LPs eventually): don’t start with a rolling fund
Raising a fund vs. building a firm are v diff things
Raising a fund: rolling funds can be great esp if (1) have following & (2) still testing the VC thing
Building a firm (+want institutional LPs eventually): don’t start with a rolling fund
5/ Pre-fundraising: Fund mgmt?
Good practices are good – don’t suffer in the future from legal/ops debt. @cartainc seems to be leading in fund mgmt these days but explore your options + negotiate your fees down on initial fund(s) (you’ll be a valuable customer in the LT, right?)
Good practices are good – don’t suffer in the future from legal/ops debt. @cartainc seems to be leading in fund mgmt these days but explore your options + negotiate your fees down on initial fund(s) (you’ll be a valuable customer in the LT, right?)
6/ Pre-fundraising: Who to raise from?
Most EMs can’t raise from institutional LPs UNLESS those LPs have specific EM programs. HNWs (esp successful founders & other GPs) + family offices are the best bet; many big VC firms also invest in EMs. Fund of funds can be complicated.
Most EMs can’t raise from institutional LPs UNLESS those LPs have specific EM programs. HNWs (esp successful founders & other GPs) + family offices are the best bet; many big VC firms also invest in EMs. Fund of funds can be complicated.
7/ Fundraising:🔑 to success:
Build LP relationships BEFORE you raise (not that different from founders building relationships with VCs before a round!).
Build relationships w/ institutional LPs 1-2 *funds* before you’ll raise from them.
Build LP relationships BEFORE you raise (not that different from founders building relationships with VCs before a round!).
Build relationships w/ institutional LPs 1-2 *funds* before you’ll raise from them.
8/ Fundraising: 2nd 🔑 to success:
Warm intros to LPs (from founders, other GPs, other LPs, etc.) are great. Warm intros from LPs that already committed are the best.
Most LPs – like most people – are sheep.
Warm intros to LPs (from founders, other GPs, other LPs, etc.) are great. Warm intros from LPs that already committed are the best.
Most LPs – like most people – are sheep.
9/ GP commit: What?
Traditionally LPs required “meaningful” GP commit defined in absolute terms (% of fund), which gatekeeps the industry & contributes to diversity issues. Fortunately many LPs now think about GP commit in relative terms (% of manager’s net worth).
Traditionally LPs required “meaningful” GP commit defined in absolute terms (% of fund), which gatekeeps the industry & contributes to diversity issues. Fortunately many LPs now think about GP commit in relative terms (% of manager’s net worth).
10/ GP commit: Strategies?
• Roll your angel investments into the fund as GP commit
• Use mgmt fee offset
• Sell part of GP/mgmt co. – some anchor LPs love this deal; as a GP avoid if you can, put limits (e.g. first X funds) if can’t
Do NOT take a personal loan for GP commit
• Roll your angel investments into the fund as GP commit
• Use mgmt fee offset
• Sell part of GP/mgmt co. – some anchor LPs love this deal; as a GP avoid if you can, put limits (e.g. first X funds) if can’t
Do NOT take a personal loan for GP commit
11/ LP Decisions? (1/2)
Every LP has diff criteria. Things u control:
• References (!! imho #1 factor)
• True differentiation (everyone has “proprietary deal flow” & “value add” 🙄)
• Track record (even if angel) + repeatability (lucky or flywheel?)
• Co-invest potential
Every LP has diff criteria. Things u control:
• References (!! imho #1 factor)
• True differentiation (everyone has “proprietary deal flow” & “value add” 🙄)
• Track record (even if angel) + repeatability (lucky or flywheel?)
• Co-invest potential
12/ LP Decisions? (2/2)
Some LP criteria are out of your control:
• VC portfolio mix (overweigh to your stage/sector)
• Overall portfolio construction (overweigh to alternatives)
Expect low hit rate
Do everything to build relationships
"No" today can be a "yes" in the future
Some LP criteria are out of your control:
• VC portfolio mix (overweigh to your stage/sector)
• Overall portfolio construction (overweigh to alternatives)
Expect low hit rate
Do everything to build relationships
"No" today can be a "yes" in the future
13/ LP Decisions: Coinvest (1/2)
Coinvest flow can range from a top 3 factor to a non-issue – understand ur & ur potential LP’s strat/expectations.
Most LPs say they want coinvest, many don’t actually follow through. When LP asks, ask about their coinvest decisions in the past.
Coinvest flow can range from a top 3 factor to a non-issue – understand ur & ur potential LP’s strat/expectations.
Most LPs say they want coinvest, many don’t actually follow through. When LP asks, ask about their coinvest decisions in the past.
14/ LP Decisions: Coinvest (2/2)
You can’t contractually promise coinvest – it’s a handshake deal based on trust (that you'll do your best, alongside or through follow-on allocs). Bringing a coinvest oppty BEFORE/DURING fundraising process goes a long way in building that trust.
You can’t contractually promise coinvest – it’s a handshake deal based on trust (that you'll do your best, alongside or through follow-on allocs). Bringing a coinvest oppty BEFORE/DURING fundraising process goes a long way in building that trust.
15/ Post-close: now what?
• “Do what you said you will do”
• LP updates are the best tool for maintaining & growing LP rels. Best practices:
📅Quarterly freq
🤑Latest markups (not just qual!) + portfolio summary (or link to full)
👶New deals w/ high level thesis (what AND why)
• “Do what you said you will do”
• LP updates are the best tool for maintaining & growing LP rels. Best practices:
📅Quarterly freq
🤑Latest markups (not just qual!) + portfolio summary (or link to full)
👶New deals w/ high level thesis (what AND why)
16/ What did I miss? Let me know your Qs below and I will do my best to answer! 🤗
/fin
/fin
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