Cup of Zhou

Pavel Prata asked me if I was interested in writing a guest post on his blog a few months back. To which I responded with the fact, that I’m not sure there was much for me to add to the LP ecosystem that I haven’t written about already. And bless how supported he is, but he challenged me to write an updated summation of everything I’ve learned about investing in emerging managers as a progression of how much I’ve learned since I first wrote my initial blogpost that put me on the map in LP-GP land. Which to this point, I hadn’t written something public-facing on that. So eventually, after much inspiration, I finally did.

Now a few months later, I’m finally glad to share it here as well on this blog. I’m not going to include the nice formatting and graphics that Pavel and his team made, so if you want to check those out and for potentially, easier readability, check out my post here.

But without further ado, and thank you Pavel for the inspiration, voila!

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The preface

In many ways, I sit in a place of privilege. I grew up in the Bay Area, and while I was not born into a household of tech, nor did I have any relatives who were deep in the tech ecosystem, I was fortunate to have friends who were and are far more tech forward than I was.

I remember being in elementary school in ‘05 and my best friends were deadset on trying to get an account on this new-ish website called Thefacebook. And the primary reason was that we got bored of Club Penguin. The site needed us to be 18 or older (or at least we needed to be some age that we weren’t. We were still living out our best single-digit lives), but I don’t think anyone was really checking. Three misfits. One of us usually received detention for getting in fist fights. His brother would receive principal office visits for making other kids cry. Blunt guy. If your drawing was ugly, he’d be sure you knew. But both were and are good people.

The first would get in fights defending his friends from getting bullied. The second, while lacking social cues, would always sit down with you to help you improve your skills. And me, the supposed “goody-two-shoes” of our misfits who would follow rules, yet get in trouble trying to get them out of detention. And frankly, none of us were good with our words. Then and maybe still now. Yet nevertheless, one of my buddies found his way to a .edu email address from volunteering at the school library. And that was all we needed to get into the “big kids club.”

I went to a school in the Bay Area, due to it being the far cheaper alternative of the schools I would have loved to go to. There I got involved in the startup ecosystem really early on because of my zealotic obsession with free food in college. (Story for another day.) I became a startup investor because the accelerator was short on hands, and it was through the first startup I was with that I knew they existed as a non-profit at the time. I became an LP because of a community I was helping run and someone asked me to invest as an individual LP for only $1,000 to his oversubscribed fund that “I [had] been really helpful in building.” To this day, I still don’t think I did anything. Then, I somehow built a network of LPs and GPs because I wrote one blogpost that was supposed to be my personal how-to-be-an-LP 101 that went serendipitously further than I expected.

And I say all of that to preface that:

1. My life is full of accidents and being lucky at the right place at the right time with the right people.
2. As a caveat that you should take all the words that will populate below with the biases that I may be coming to the table with.

That said, I do believe that life is all about increasing the surface area for luck to stick. There’s a line I really like that I came across a few years ago by Qi Lu, who created Bing, Microsoft’s search engine and is the former COO of Baidu: “Luck is like a bus. If you miss one, there’s always the next one. But if you’re not prepared, you won’t be able to jump on.”

When Pavel asked me to write a step-by-step guide on how to choose managers in 2026, my immediate thought was that I couldn’t ever write it from the stance I have today, but if I were starting all over from nothing, except capital to invest, where would I begin?

Yet knowing what I know now, with the network I have now, with the brand I have now—though I still have a long way to go, how is investing in emerging managers today different from the last few years?

As such this essay will be split in two overarching sections:

1. For the LP who’s just reached the block
2. For the LP who’s been around the block

A big thank you to Beezer Clarkson, Dave McClure, and Narayan Chowdhury for proofreading, guiding and helping me frame early drafts of this piece.

For the emerging LP

One of my good friends described investing in venture funds in the 2020s as “expert mode”, as opposed to when he started in 2001 as “the tutorial.” He said that in 2001, there were 200 firms in total in the market. That he met with half of the firms in the market. Then invested in two-thirds of the firms he met with. And that resulted from three vintages that returned 5X net on his venture fund portfolio. According to him, every fund he invested in was an emerging manager. The whole asset class was an emerging asset class.

Today is undeniably harder than it’s ever been to be a venture fund LP. Thousands of firms in-market. Everyone tells you they’re the greatest fund since sliced bread. Or in their words, they’re top quartile, if not top decile. Everyone tells you they have unique access. Yet most people generally have access to the same “legible” deals. Or at least, “legible” founders which include a river of backwards bias. So, who has “better” access? Time horizons are realistically 12-15 years, instead of the 10 years people pitch you. Plenty of GPs quietly “retire” after 2-3 years to go work at a portfolio company or “get acquired” by a larger platform. IPO markets haven’t fully opened yet, and there just isn’t enough private capital to deploy into the largest companies. 2025 has been an interesting year of one of the lowest years in dollars raised, but one of the highest, with respect to dollars deployed. Six-layer SPVs, where the individual who manages the sixth layer has no idea who actually owns the underlying asset, just a forward contract towards the stock.

The first question you need to ask yourself, and likely the most important question, you need to ask yourself is if someone pitches you their fund, and it’s Wonderbread, why are you so lucky?

How are you luckier than the most established institutions who’ve done this for decades? How are you luckier than people who are college roommates with Sam Altman? How are you luckier than multi-stage venture funds who have a strong brand AND an active fund-of-funds program that invests in managers sharing their deal flow with them? How are you luckier than content creators who get pitched VC guests all the time? How are you luckier than the owner of Buck’s or Coupa or the real estate firms who own buildings on Sand Hill Road?

More likely than not, you’re not. I’m not.

A long-time private equity allocator friend of mine has this great line, “There are only two kinds of people who make money. Really smart people and dumb people who know they’re not smart enough to beat the market. Everyone in between has just enough knowledge to make dumb decisions.”

There’s a great line by the legendary Richard Feynman. “The first principle is that you must not fool yourself—and you are the easiest person to fool.” Remember that.

So, after all those disclaimers, do you just not invest?

If the above scares you, probably not. You’re more likely to generate consistent returns by investing in the indices. But if you’re willing to put in the blood, sweat and tears, maybe the below might be of value to you.

The first step is to see a lot of deals. You have no idea what quality looks like until you’ve seen quality. Otherwise you’re spending a good chunk of time imagining what could be and what should be, but not is. Just like the GPs we evaluate need to prove they can “see, pick and win”, we as LPs have to do the legwork to see the best deals, to build the framework to pick them, and to win the deals that are hard to come by. But first, on seeing…

It’s like dating for the first time. I don’t know about you, and this might be TMI (too much information). Before I dated my first girlfriend, I had all these ideas implanted in me from Hollywood, Hallmark movies, Matthew McConaughey, Sandra Bullock, Anne Hathaway, Hugh Grant—you get the point. I had these faint, rose-tinted ideas of how my future partner should, would, could act. But when I finally started dating, reality was wildly different from expectations.

The same is true when you look at funds. Whether it’s media, podcasts, or newsletters, they all tell you a warped perception of the reality of the market, told through the lens of a world that is most beneficial to their incentives. You need to figure it out your own. And when you do in the first year, maybe a bit longer, you will inevitably talk to more noise than signal. Accept that fact.

To get inbound, you need to do a combination of a few things. Pick your battles here:

• Put “LP” on LinkedIn. You will have random GPs find you in their search engines and reach out. Almost all will be noise here, unfortunately.
• Go to events that attract GPs (i.e. EMC Summit, RAISE Global, Bridge Funding Global, SuperVenture, FII, Upfront Summit, etc.). Your priority here is to go to the side events that aren’t publicly disclosed that have LPs and GPs. If you can’t get in there, go find the LP/GP Happy Hours and dinners that are shared on Eventbrite, Luma, and/or Partiful. And if still you can’t get in, at these events, there are occasional speed dating breakout sessions.
• Reach out to LPs and ask to buy them coffee as you are learning to be an LP. You can find these LPs either on:
  • Podcasts (i.e. Swimming with Allocators, Origins, Venture Unlocked, How I Invest, Superclusters—mentioning my friends’ platforms before my own)
  • Reacting to LP and emerging manager content. There are a few LP “influencers” out there. Note not only who reads and comments on these posts, but whether the original poster also replies back to those comments (which is a loose indicator on the depth of their relationship and if that commenter is somewhat respected in the ecosystem). FYI, don’t use me as a barometer, since I try to reply back to everyone. But a couple “influencers” that might help you kickstart your search. Beezer Clarkson, David Clark, John Rikhtegar, Meghan Reynolds, Endowment Eddie (on X), Dan Gray, James Heath, Matt Curtolo, and so on. Occasionally, Hunter Walk, Charles Hudson, Rick Zullo, Peter Walker and a few other VCs also post good LP content. OpenLP is also a great platform that captures the most interesting thoughts regularly, as well as what Pavel is building now too.

Now, that you have a list of GPs and your calendar has a few meetings set up, you ideally get GPs to share their decks with you before the meeting. Although, understandably, it is harder for GPs to trust you with their decks if you haven’t yet built up social capital and trust.

If you can get the deck, I look for a few things. At least one interesting thing on the deck that can help the GP see more deals, pick better deals, or win competitive deals. And (b) is that “thing” an insight that the GP’s prior background would have made explicit or obvious to that GP? For me, that’s enough to take a first meeting. Do note that most decks look the same. And if you can’t tell one deck from another (that’s okay, I started like that too), ask the GP before the interview, something along the lines of: “Of everything that is on your deck about the fund, is there one thing about you or your fund you hope that I catch that you’re really proud of but there’s a chance I might not notice?”

Naturally, you can ask that question, even if you don’t have the deck, and if their answer impresses you, take the meeting. I call that “suspense.” Partial information that I am privy to that elicits further questions and curiosity. To engage with any GP, I need that first.

So then I share my calendar. I use Calendly, but you’re welcome to use any alternative. And I include the below text along with the calendar invite to set expectations.

Do note that the meeting is only 15 minutes long. You don’t have to do this, but I find it useful because I’ve seen a number of GPs already. My CRM tells me just under 1000 that I’m actively tracking. But there are definitely more in the universe. All that to say, I’ve come to realize for myself that I figure out if I want to continue a conversation with a GP or not within the first 5-10 minutes.

The only thing I’m looking for in the meeting is “surprise.” Is there something I can learn from the GP that I didn’t know before? About them? About the industry? About the technologies? Ideally, you also consume quite a bit of information outside of each conversation. For instance, I read research papers, talk to people I think are smart, listen to podcasts, read newsletters, and build things here and there. The more information you consume outside, the higher your bar for “surprise” will be over time.

And if I learn something, only then, do I actually start doing homework around the fund opportunity. And spending more time with a GP.

Diligence

For the purpose of this section, I’m going to prioritize diligence as it relates to people. I’ll talk about portfolio sizing and construction in the section below. I’m also going to assume you don’t have the ideal network to diligence the opportunity. What does the ideal network look like?

A small selection of A-players (founders, operators, co-investors, and LPs) that you trust AND they trust you to withhold judgment about them, as well as keep what they tell you in the highest level of confidence.

Admittedly, this will take time to build. Some longer than others. Your mileage may vary from multiple months to many years, sometimes decades. And this will be a part of your job as an LP to continually refine.

But in lieu of that, here’s where I’d start:

1. Find who are A-players. Needless to say, before you can build a relationship with A-players, you must first be able to recognize A-players. Admittedly, this is a lot of legwork. And everyone approaches this part differently. For me, I have to consume a large amount of information from disparate knowledge networks, talk to different people and see who they respect, listen to a lot of podcasts, read a lot of books and content, in hopes of triangulating clarity of thought, as well as executional discipline. I don’t have a silver bullet here unfortunately, but here are a few traits I’ve seen over the years that seem to have moderate to high correlation with A-players.
2. Find out what motivates and drives them. What do they need? What do they want? What do most people fail to understand about them? This will also take time, potentially longer than the first step. Your job for now is to establish trust and rapport. “What you share with me will never find its way back to the person I am calling about.”
3. And as you’re doing all the above, and still looking at deals. For people you know well and you can attest to their intellectual and executional rigor, ask them for their opinion. For everyone else, focus on asking about the facts. You’ll need to use the facts to piece together a narrative. Instead of “Who do you like”, ask “When did you last talk to X?” or “How many intros did this GP make for you? And how were you introduced?”

Naturally as part of diligence, you need to figure out and corroborate if a GP has an edge. Risks and weaknesses will always be present. Also, expect to get negative references. Any ambitious person is bound to ruffle feathers and rub people the wrong way. If you don’t find any, you’re either talking to the wrong people or you haven’t given those people a safe space to talk. Also I want to note, as Cendana’s Kelli Fontaine once told me: “Neutral references are worse than negative references.”

Negative references	Understanding why it’s negative is important. Is it merely a disagreement on perspective? Or is it evidence or an account of poor work ethic, abrasiveness, lack of open-mindedness, or poor morals? For instance, “GP didn’t work that hard at our company” is not all bad, depending on their answer to “What did they do outside of work?” If the answer is “I don’t know”, then your job is to find out what they did and if they worked hard there instead because working at their last company didn’t align with their goals. To give another example, a friend of mine once did a reference on a founder—the lesson is the same—where a reference told him, “I really hated how X always wore tank tops and sandals when the office culture required us to be put together.” And many of his former colleagues all said the same thing. Yet no one ever complained about the work he did. Because despite his poor dress code, his output was in the top percentile on the team. GPs, by nature of pitching a (hopefully) new narrative and charting their own path, will be controversial. It’s just part of the game. But obviously, it should not discount any bad behavior. Other comments that belie a reference’s negative sentiment about someone: “The GP is interesting.” Interesting is usually a quiet opinion withheld. It’s always helpful in these situations to prod deeper. “I like the GP as a friend/human.” Why don’t you like this GP as an (investment) professional?
Neutral references	Neutral references come in different shapes and sizes. Note that if you ask leading questions, you’ll get safe answers. For example, “Do you like X?” leads to an answer of “Oh yes, I like X.” The most common form of neutral references are often masked by positive, generic adjectives, but can’t be substantiated by real examples. Other forms include not remembering who the GP was despite the GP being on the cap table, or working together. Also, on-list references who opt to text/email you about their commentary on a GP instead of call. Or taking a really long time to schedule time with you to talk about the GP, versus immediately leaping out of their chair to tell you about a GP. In addition to that, references (usually on-list or their most notable co-investors or founders) who didn’t even know that the GP was raising a fund or what the GP would be investing into.
Positive references	Positive ones luckily are the easiest to spot. And it’s not just the words you hear, but the emotions you feel when someone tells you about the GP. These references, whether they say it explicitly or not, would go to war for the GP.

Peter Fenton at Benchmark recently shared a line I really like. “The highest accolade of a firm that they seek is a manifestation of a value system.” Most investments—both at the level of an angel investment, but also a number of institutional investments—are written as one-night stands. The majority, if not all, of the conversations happen T-3 months before an investment is made. Then as soon as the investment happens, outside of the monthly or quarterly updates, and maybe the board meetings, no other meaningful conversation happens post-investment. And the truth is if an investor hasn’t built their value system (and for that matter, value-add system) before they start their firm, they’re not likely to change their behavior and their habitual cycles after they start their firm. Moreover, noting my bias, I prefer to invest in GPs where I am investing in the worst version of their firm on the day I invest. That it’ll only get better. And to do so, certain things need to compound: brand, value, network, among others. In order for that to happen, they need to have built a relationship, as opposed to a one-night stand, with many of their investments, even beyond their best ones. So the point of doing diligence is to find evidence of their firm’s value system before they start it.

Having shared the above, now that you have time with the GPs and some of their references, what do you ask?

Note that the below aren’t all-encompassing nor exhaustive questions and that you usually get more from asking follow-up questions instead of building a checklist of questions to ask. Merely, the below serve as a point of inspiration as you do your own due diligence. As such, I’ve structured the below into categories on how I assess a GP’s ability to see, pick and win through the reference calls I do, segmented by reference archetype.

Seeing

What does their sourcing engine look like? How much is inbound? How much is outbound? Do they have access to proprietary channels for deal flow—even if momentarily? Do they know people who add value to the innovation ecosystem, but aren’t well connected to the rest of the innovation ecosystem?

I will note that most GPs will say most of their deal flow comes from founder referrals.

Recipient	Questions	What I Look For
The GP	How do you find opportunities before anyone else?	Are they fishing in new uncharted territories? Do they have non-redundant networks and access points?
Founders	How did you first meet this GP? Do you remember the type of conversation you initially had with said GP? If the GP met this person via an event: How often do you go to these events? Outside of meeting this GP, who’s the most memorable friend you’ve made via the event? If the two met via an intro: How often do you catch up with your mutual friend? Has your mutual friend introduced you to other investors?	I’m trying to understand how much of a GP’s deal flow is inbound versus outbound. As well as how repeatable certain deal flow channels and nodes are.
Co-Investors	How is this GP’s deal flow different from yours? Why haven’t you pursued building out your own network in this field?	Can [insert big firm] just do what this GP can? Is there a structural moat?
LPs	For the funds you were also looking at or have in your portfolio, who seems to have the same deal flow channels as this GP?	Institutional LPs see a lot, and as a function, they likely see a lot of overlap in inbound channels. So for people who have the same channels, why does a certain GP capture value from it better than the rest?
Ex-colleagues	In what situations do you typically find this GP to be proactive when you used to work with her/him? What has this GP done that no one with her/his job title has ever done in the past?	How entrepreneurial is the GP? Is the new firm the first instance of their entrepreneurial nature or is this part of the GP’s inherent nature?

Picking

There’s a saying in the land of LPs. “You don’t have to invest in every great fund, but every fund you invest in has to be great.”

So the question comes down to: how do you know if someone is great?

Recipient	Questions	What I Look For
The GP	Why have you and haven’t you put the most amount of capital behind your portfolio’s greatest value driver? If we could go through each of your past investments—good and bad—can you enlighten me on why you invested in each?	The first question is figuring out if a GP understands how early and how much to put in their greatest outperformers. What signals do they rely on? Are they ready to invest with reserves? The second question is to understand how the GP’s ability to recognize excellence and insights has evolved. How quickly they ramp up. How many investments it takes for them to shift the way they think. At what point, do previous investments impact the way they make future investments?
Founders	What kinds of conversations did you have with the GP before they gave you a term sheet? How long did that journey take? Were you surprised at all? How did the conversations with this GP differ from the other ones you had?	From the perspective of a recipient, how much of a GP’s intention is well-understood before the GP embarks on a commercial relationship with the founder(s)?
Co-Investors	How often do you take intros the GP sends your way? Was that always the case? How has your relationship with this GP evolved over time? Where do you foresee it evolving towards?	Do investors understand and value a GP’s eye for people and opportunities? With the second set of questions, I’m trying to understand how much a co-investor values this GP’s deals. If the co-investor works at a multi-stage fund, have they ever tried to hire this GP into their firm? Or had them as a scout? Or is it a purely, “it’s nice to have you in our orbit” kind of relationship?
LPs	How have you directly experienced the value of being an LP?	Have the GPs provided any value to their existing LPs? I’m primarily looking at GPs who claim to offer co-invest opportunities. Do they (a) know the founders well enough to get allocation for people the founders likely don’t know or trust yet, and (b) how much do they optimize for what’s best for the fund versus what’s best for the LPs? With (b), it’s not a bad thing to optimize for the fund, but setting expectations is important, instead of claiming to be helpful to LPs without actually being helpful.
Ex-colleagues	Has this GP hired anyone in the past that you’ve genuinely impressed with? Why were you impressed by these individuals? Has this GP done anything to help these individuals succeed over time?	There’s no direct parallel between hiring and investing, but in terms of recognizing talent, there are some similarities.

Winning

Why do the world’s best founders want to work with you? What do you have to offer that others don’t? Why would a world-class founder have you on the cap table when there are so many great options out there (and even when there’s that much inbound interest)?

Recipient	Questions	What I Look For
The GP	What is your proudest piece of advice you gave a founder or the proudest thing you did for a founder? What’s something you did for a founder or a piece of advice you give that didn’t work out? What’s something you did/piece of advice that did better than you expected? Can I see every single version of your pitch deck to date? (If there’ve been previous vintages, ask for those as well.)	I’m primarily looking for specificity. Was it proactive or reactive? And when corroborating with said founder later on, will that founder reflect the same sentiment? With regards to the second and third questions, do you measure when things deviate from expectations—good or bad? My goal with the last question is to understand how the GP’s thinking has evolved over time. How has the GP’s ability to storytell changed? Do they have a better grasp of how they can add value and what founders actually want over time?
Founders	Which other investors did you talk to before you took this GP’s check? Did you know that you were going to be a hot commodity? When and how did you know? How did the GP help when things weren’t going well? How did the GP react when things turned downwards?	Was there competition for the round? It’s neither good nor bad if there was. And if there was, why did they end up taking this GP’s check? Would they still take it if this GP wrote double the check and asked for double the ownership?
Co-Investors	What value does this GP bring to the table that seems to be a constant ask from your portfolio companies?	Why will fellow investors fight for this GP to be on the cap table?
LPs	Who were the most elucidating individuals you talked to best appreciate this GP’s value-add?	Are there people you should have talked to but have yet to? Or are there people you talked to but asked the wrong set of questions? Or whom you’ve yet to build rapport with?
Ex-colleagues	What would you say is this GP’s greatest asset/skillset? How have you seen it in practice? Who’s the best person you know of for [insert what the GP claimed as value add]? Why? On that same scale, where this person is a 10, where does the GP sit? What would help this GP get to a 10?	A-players typically know other A-players, and understanding how they rank a GP among all the other practitioners they know is valuable intel.

Gravitational pull

To tie the above together, there is no perfect emerging GP. And if they are, they’re probably not an “emerging” GP. I look for emerging GPs who excel in two of the three areas (see, pick, win). One in isolation won’t help. If you’re the world’s best sourcer, but you don’t know how to pick the right one even when it falls on your lap, or you don’t know how to get the founder to choose you over others, then sourcing alone is for naught.

I look for GPs to have an unfair advantage in two of the three areas. I need the cards stacked in their favor. Oftentimes, their unfair advantages are further accented by what first surprised me in the first meeting or two. Furthermore, gravitational pull comes from acknowledgement of their unfair strengths, as well as the constant refinement of the craft that increases the firm’s leverage over time.

Partnership risk

One other important element to underwrite is partnership risk. To many experienced allocators, like Ben Choi once told me, this may even be the single biggest risk an LP has to underwrite. If you’re investing in a partnership, chemistry really matters. They may look great on paper. They may have complementary skillsets. But do they talk about each other in ways that raise each other up? How are decisions made? Is there a power imbalance? How is compensation shared (salary and carry)? How much do they not only respect but adore the others’ strengths? How do they resolve conflict? Have they disagreed with each other before?

Portfolio construction and sizing

By the time you decide to invest in funds (or directly into startups too), you need to understand that you’re building a portfolio. Unless your hands are blessed by a higher being or that you have the Midas touch, there is a ridiculously low chance you can pick 2-3 funds and expect they’ll outperform. Naturally, you want all the funds you do invest in to do well, but sometimes in this world, you can do everything right and have things still not work out. So expect, on average, most funds will return you 0.8-5X their money back to you.

So there are a few things you need to figure out:

1. Assuming things go right, and you’ve invested in this 5X fund:
   • Is a 5X net (which is roughly a little over 6X gross) return on your investment meaningful to you and your net worth?
     • If not, then the question comes down to: Is there something else you value from investing in this fund? Some value co-investment opportunities. I know of a number of venture funds, traditional fund-of-funds, and multi-family offices, who see their fund-of-fund program as a loss leader, with the primary goal of the fund-of-funds to generate deal flow for their direct investment practice. As an emerging LP, do consider that if you want co-investment opportunities, are you the largest (or at the minimum, one of the largest LP checks who care about co-investments)? If not, then consider the reality of why would the GP ever give you the best deal flow if you’re not their greatest (monetary) supporter.
     • If so, great. But at the risk of it being a 0.8X net fund, meaning you not only lost money to decision-making, but also to inflation and the opportunity cost of investing in a public market index, can you stomach the loss 12-15 years from now?
       • If not, invest a smaller check size.
       • If so, great.
   • Whatever is needed to 5X the fund, what is the exit value necessary for that?
     • If a GP has no reserves and invests pre-seed/seed, assume 75-80% dilution by the time of exit for the fund’s greatest value drivers. This does not account for acquisitions, which will have a little more nuance. This also assumes that there will be 5-6 rounds of investment after the one the GP invests in.
     • If a GP has reserves, depending on the industry, and how much they continue doubling down on the investment, it’s safe to assume 55-60% dilution. If the GP plans to continue doubling down on pro-rata past the Series A, do account for how much of the overall fund is allocated in a singular deal. Usually limited partner agreements cap it at around 15% of the overall fund, to allow for minimum diversification at the portfolio construction level.
     • And assuming you know the exit and enterprise value that’s needed to 5X the fund, do you believe that’s possible? Your job is to go into the internet archives and find, if in the last few years, what percent of companies in that industry has exited for that size. And how likely will it be for future companies to exit at that size? And even if so, do you believe the GP is in the right information flows to capture that outcome?
   • Is the number of companies the GP wants allocation into, reasonable to you? Every person has a different level of tolerance in this regard. To make some gross assumptions, if a GP invests in 50 companies in a fund, then they need a single company to 50X to return your money back once (obviously I’m taking the gross, not the net numbers). And they need a single company to 150X to 3X the fund. At a $10M post-money valuation, a 150X would turn the company into a $1.5B company. Again, do open a spreadsheet for this. I’m not accounting for dilution, fees, recaps, and a bunch of other things. This is purely a back-of-the-napkin version of: Do you believe a $1.5B outcome in this sector of choice is possible?
     • Do also note that given that venture is a power law business, a single value driver for a fund usually accounts for at least 60% of the overall fund’s returns. 1-2 companies account for another 20-30%. And the rest, the last 10%. I also want to play my own devil’s advocate that almost nothing in this industry is “usual.”

Miscellaneous thoughts

1. Don’t invest in the first 50 funds you see. You will miss great deals. That’s okay. You don’t have to invest in every great fund, but every fund you invest in should be great.
2. If you’ve been out-of-market for more than a year, do the same. You need to know how people are hiding skeletons in their closet?
3. Trust the data, but not the judgments of people who see a plethora of deals in venture. Have they seen other funds with the same strategy before investing in this one? What was different?
4. Almost every fund you meet will say they’re top quartile or top decile. Be skeptical of benchmarking data, or for that matter, publicly available data that will suffer from availability and selection bias. They’re either too opaque or delayed, and in the words of some institutional LPs, “totally fabricated.”
   • To borrow the words of my friend Peter Walker, who’s constantly cited for his Carta reports, ““You should probably, if you’re a founder, for instance, selectively ignore at least half of what I’m saying because it doesn’t apply to you. And your job as a founder, your job as an investor, your job as a thoughtful person is to figure out which half.”
5. Ignore the marketing jargon associated with “select” track records GPs share with you. Ask for their schedule of investments (SOI), which should include all their investments to date, not just the ones they want you to see. Figure out your own valuation methodology, and prescribe that to their SOI.
   • For me, SAFE notes don’t count as markups, only priced rounds. Any company that hasn’t gotten reevaluated in the market for over 2 years receives a discount. The only exception is strong revenue growth since last round. Discount is based on public market comparables and their revenue multiples. Usually 7-8X on revenue for me. Not always.
   • If a GP gives you “target” or “projected” multiples, you’re welcome to ignore the number outright. What’s more interesting and important are what were the assumptions that led to the projection. What is the expected dilution? How many rounds is a company expected to raise before their projected exit? What is the assumed graduation rate per stage? What is the conservative estimate?
6. Never trust the word of a GP. Spend more time on reference calls than you do with the GP. When doing references, if you know people really well AND believe they are the top 1% in what they do, ask for their opinion. Everyone else, ask for the facts.
7. Make sure the data corroborates with the narrative. Is the data/track record repeatable? Being 0.1% on the cap table in three rocketship companies is very different from an investor co-founding a company. The relationship is different. In the former case, the founders, much less the executives, even remember a GP exists.
8. When asking questions, roughly a third to a half of your questions should be the same across all managers, only then can you compare apples to apples.
9. When spending time with the GP, find out what they don’t want you to know. What are they scared of, that if you know, they think will look bad on them? Everyone has insecurities. That’s okay. But only once you figure that out, can you better assess the information they’re telling you. And better yet, the information they’re not telling you. Which is what you eventually go to diligence.
10. Sometimes there’s just no LP/GP fit. They might be a great fund, but you just don’t feel the pull.
11. Set expectations clear from the get-go. If you’re in exploratory mode, say it. If you’re actively deploying, say it.
12. At any point in time, if you are no longer interested, and know that you’re most likely not going to invest, say it. It’s better that a GP thinks you’re not going to invest, then you do, than think you’re going to invest, but you end up not.
13. Be mindful of a GP’s time. If you’re not going to write the largest check as a function of a GP’s fund, know you have limited time with them. Do not waste their time. Know you will have to do most of your homework without the help of the GP. If you want to be spoonfed diligence, this is the wrong asset class for you.

On spinouts, my primary concern is always: Were you successful because of your last firm or in spite of your last firm? If you no longer had the title you did last month or this month, would people engage with you differently? If you’re the keynote for a large conference (i.e. SuperVenture, FII, iConnections, etc.) when you held your last position, will they still invite you back as a headliner when you’re starting a new firm? When people talk about you behind your back about how amazing you are, do they talk in the past or present tense? Tactically, are you the ex-Redpoint partner or Tomasz? Are you ex-Greylock or Sarah? Are you ex-[insert big firm] or you?

As most insights, these will very rarely come out in conversation with the GP. More often than not, they’ll come out in diligence. Particularly off-list references. If you don’t have the network, you have to rely on on-list references and maybe a few good friends, but know that there is no incentive for people to speak ill of someone else to a stranger. So diligence only the facts. You’re likely not going to get the honest “opinions” you want to adequately understand an opportunity.

For established LP

If you’re an established LP, you know most of the above. So instead, I’ll share a couple reminders that you may have heard before, but are paramount more today than before. Before I share them, here’s how I’m categorizing the difference between an emerging and an established, just because I know everyone has a different definition (i.e. AUM size, number of investments made, track record that extends for at least a decade, etc.). Do note, you don’t have to check all the boxes. As long as you have most of the below traits of an “established LP”, you’re probably established. One of those touchy-feely things where when you see it, you know it.

Emerging LP	Established LP
No prior network to lean on	A robust network to source and diligence deals (meaning you get at least 5-10 quality referrals per month from legible people)
No brand	A brand where people will start a conversation with you purely because of the jersey you have on
You need to go out hunting for deals. Show up/host events. Build a platform. Actively book time on people’s calendars to find out what’s going on.	(Related to the above) Inbound deal flow exceeds outbound, but with the understanding, to do your job well, you still need to do outbound.
You take time to deliberate on decisions. Understanding what’s going on takes time. If you were to look only at a pitch deck, outside of the metrics, you might struggle to understand what’s important. BTW, this is both good and bad. But good in the sense that you don’t have prejudice. And you’re more willing to uncover diamonds in the rough.	You make fast “no” decisions (at least internally). A function of the scar tissue and the training you’ve had up to this point.
You invest opportunistically. You might not have the quality of deal flow to start a consistent deployment strategy. That’s ok, BTW.	You can invest opportunistically, but if you wanted, or have already, have capital and the network to deploy consistently against some schedule. Could be annually. Could be quarterly.
If you show up at any LP-only event, you might know the host and one other person at best.	If you show up at a random LP only event, you know at least a few other LPs in the room by name.
You’re on an email basis, maybe LinkedIn basis with other allocators and investors. It will take time to build the relationships.	You’re on a text/Whatsapp basis with other experienced LPs and they respond to you within a few hours, if not minutes.
You need to build out your systems for managing deal velocity and future volume. Easier to start when you have less volume. (Building out systems is an article to write for another day.)	You have a system for tracking your deal flow pipeline, diligence, and keeping track of your portfolio and anti-portfolio investments.
You’re not intimately familiar with SEC (and others) regulations around the rules of engagement in LP land.	You know exactly what compliance will let you and not let you say. And you know the right verbiage to dance around these topics.

So the reminders:

1. Be open-minded. To have gotten this far in your investing career so far means you’ve built biases to help you make better decisions. Likely, also faster decisions. You’ve probably used some phrase along the lines of “There will always be another train leaving the station.” And you’re right. Most are worth waiting on. But there will be a small, small select few that is worth breaking every rule you know for. The truly once-in-a-lifetime relationship (not just opportunity). Know that the greatest firms tomorrow do not look like the firms from before.
2. To check your biases, ask yourself three questions:
   • What do you typically gravitate towards? Why? Was there a part of your past that led you to gravitate towards X?
   • What, for whatever reason, do you not like? What gives you allergic reactions? Why?
   • What, for whatever reason, do you not notice at all? Of all the skimming you do, what are the parts of the narrative that you most easily gloss over? Why?
3. Numbers tell a very small part of the story.
4. What’s worth underwriting more than anything else is motivation. Motivation to outperform. Motivation why this upcoming fund means they’ll work harder than before. Motivation to get better at what they might already be good at. That means most of the work is qualitative, not quantitative.
5. If you’re an established institution, you already have a brand. You likely don’t have to hunt for deals (regardless of what you tell your stakeholders). And it’s probably all true. But you won’t always have that brand. So it’s your job not to do a disservice to the brand. And almost always means you communicate expectations quickly and accurately.

There are two angles here.

1. Do you want to play in emerging venture today?
2. Do you want to re-up?

Emerging venture today is an asset class in and of itself. High attrition rates. Too many players. Lack of data. Lack of track record. Sometimes, even lack of network. The underwriting for someone who invests $250-500K checks is different from someone who typically leads rounds. The underwriting of a partnership potentially not yet fully formed until Fund N+2. Data rooms with missing data. A portfolio construction model that is a guestimate at best, completely made up at worst. Assuming you’re reading this, you know that. And that it is a full-time job.

1. How are you continually refreshing your network—both for sourcing and for diligence? Are you making sure your network isn’t stale? All networks atrophy over time. How are you keeping your most helpful contacts fresh, incentivized, and willing to give you their honest thoughts? You don’t need a lot here. It helps to optimize for at least 20 relationships, leaning largely into, and likely in the below order:
   • Fund-of-funds who see many deals and whose sole job is to evaluate emerging managers, and/or any institution who has a dedicated emerging manager program (i.e. Vanderbilt, Babson, Gresham, etc.)
   • Service providers (i.e. lawyers, fund accountants, fund admin) who get to know many emerging managers from a different angle
   • A select few hot founders who also angel invest and are superconnectors in their own right
   • Multi-stage fund GPs and partners who often co-invest with emerging managers. Focus on those who have dedicated event series and/or communities for emerging managers. I personally spend less time with venture funds with their own fund-of-funds program—not because they’re not great, but they’re often biased to promote their own fund managers. Different story if I knew them before they launched their FoF program and I can get honest thoughts here. If you don’t know who to target, there’s a select few names—say around 15-20—that most active emerging managers love to have on their deck.

On re-ups:

1. What are the incentives of the organization? Do your incentives as an institution still align as strongly with the GP as it did when you first invested?
2. If not, have you communicated that pre-emptively with the manager?

In closing

Despite the surplus of information and the sheer number of venture funds (in the mid-to high thousands), none of us can do it alone. At least I don’t believe we can. Why? Unlike the public markets where there is as close as we can get to parity of information. The private markets, especially early-stage investments, exhibit none of that. People win on asymmetry of information.

Jacob Miller once told me on the podcast that in investing, there are three things you need to understand. Inputs, frameworks, outputs. Outputs, you can’t always control. But as long as you have good inputs and a great framework, your outputs should speak for themselves. With my blog, I’ve always tried to empower people with frameworks. With The Side Letter that Sam and I launched, we’re trying to empower people with inputs you can’t find anywhere else.

While I’d love to surmise all of LP investing in one fell swoop—Pavel’s given me quite the task at hand—the truth is I can’t. The best I can do is to share the frameworks I use. The next step is for you to find the inputs that will drive your investment decisions. Those can come from leveraging a platform or community. Hell, even investing in other funds-of-funds. Or collecting asymmetric information yourself. Or a combination of both. It’s only a matter of how much time, attention, and energy you have on your hands.

As always, and I have to say this at the end of everything I write, the views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.

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Again, a huge thank you to Beezer Clarkson, Dave McClure, and Narayan Chowdhury for proofreading early drafts of this piece to help me better refine my thoughts here. I wouldn’t be here without you.

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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.