I had a conversation with both a family office and a fund-of-funds this week about the same topic. All of us at a high level agree on the premise of it (with nuances at the edges). And within 24 hours of each other, so I now feel compelled to write about it.
There are four sets of GPs we come across as LPs.
- GPs we love and end up backing
- GPs we think are really interesting, but for whatever reason, choose to wait and track
- GPs we pass on really quickly
- And, GPs we, unfortunately, because the stars don’t align (or whatever the horoscope folks say, when Jupiter meets Neptune or Mars is in retrograde… clearly not a astrologist), fail to give any respectable attention to, and never even began to dig in at all.
The last one is unfortunate. Truly. But it happens. A stray LinkedIn message. An email that slips through the inbox. A chance meeting at an event with no follow up.
Now this post is about judging.
Not all LPs see eye-to-eye on investments. Sometimes I’ll find a GP particularly fascinating, and my peer won’t see the same brilliance. And vice versa. But most of us do agree, to some extent, that the sum of our first set of GPs (ones we invest in) and our second set of GPs (ones we’re tracking but didn’t invest in) is roughly the same as each other’s. In other words, if another LP I respect has invested in a fund that I didn’t, I am most likely tracking that fund. And even though another LP friend may not invest in the same funds that I do, they are most likely tracking the GPs I’ve invested in. What’s good enough to invest for one LP is good enough to invest to track for another.
What raises the eyebrow is usually coming across an LP who has a consistent track record of investing in funds that you yourself pass on rather quickly. The third set of GPs. One, maybe two, fine. It happens. You may have missed something when skimming quickly. But if there are three or more GPs in one’s own third set but in another LP’s first set, one starts questioning their judgment. And it seems that the family office LP and the fund-of-funds manager also agree.
One caveat to note… this only really applies to LPs who primarily focus on venture. The unfortunate circumstance of LPs who don’t focus only on venture is that given limited bandwidth, they’re likely to have a lot more GPs in a given asset class in the third camp than LPs who only focus on one asset class.
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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.