Thread by @Beezer232

It’s September - time for the annual run to raise/close out #VC funds before the end of the year. For many #GPs - this means reaching out to an LP who passed on a previous fund.

This thread deep dives into what to keep in mind as you circle back and reach out to #LPs that passed in the past (which I *do* recommend doing btw)👇

#OpenLP

(Note: Drawing inspiration from this wonderful thread by @dunkhippo33 on a similar dynamic when entrepreneurs are turned down by #VCs:)

https://twitter.com/dunkhippo33/status/1417231454375841796

Lesson 1 - An LP passing is not a ‘no’ for forever but for that fund raise.

LPs often invest after taking the time (sometimes multiple fund cycles) to get to know the team.

As @HarryStebbings artfully puts it, “LPs invest in lines not dots.”

https://twitter.com/HarryStebbings/status/1429910203538059268?s=20

Developing a relationship, building trust, watching a team effectively execute against a stated vision… does not happen overnight, especially in our new (mostly) virtual world.

It can take an LP a few at bat’s to understand how an venture team operates and thinks.

Lesson 2 - Just as your portfolio strategy/construction will evolve over time, so might an LP’s. You have to meet your potential future LP partner at the right time for both of you.

Sometimes an LP just isn’t adding new managers to their portfolio at this time. They might be busy with re’up’s and simply not have additional capital to commit at this time.

LPs investing over a long period of time have “mature portfolios”. For them to take on a new #VC relationship a couple things need to be true:

An LP might already have exposure in the area you are investing.

So the opposite is also true - look for LPs seeking additional exposure in the areas you are investing.

Keep in mind - if an LP has a mature portfolio, it could be to invest in you, they have to stop investing in an existing manager. Or in other words - they will have to believe you can deliver better performance than their existing manager. This can be a high bar.

For some LPs - seeing a VC firm go through a few fund formation/deployment cycles is viewed as a safer bet from a risk/reward perspective. Particularly for institutional investors, this could be key. 🔑

First-time funds might be too small/early. Investor track records might be a bit too green. These are the levers that can shift in your favor over time as your track record develops and your team dynamics and place in the market solidify.

Some institutional LPs will be open to earlier opportunities, first time funds or emerging managers as these LPs seek the over-performance emerging managers can deliver.

Bottom line: Always ask an LP you are pitching where they are at this year with committing to new relationships and what needs to be true for them to do so.

Lesson 3 (echoing @dunkhippo33) If you are going to pitch an LP that turned you down before, it is *critical* to show you took their previous feedback seriously. This can mean showing them how you addressed it or even if you didn’t make changes, why not and how things are going

When an LP sees how their feedback from a previous cycle has influenced your thinking, it’s a very positive signal. It’s analogous to a VC trying to gauge how much a founder listens.

Or in LP speak - “ Is this #VC able to grow and develop as a leader/manager/investor?”

TL;DR ➡️ Fundraising (and GP/LP relations) is an ongoing process and a two-way dialogue.

Actionable feedback today leads to a richer partnership tomorrow. 💪💪💪