A few months ago, my good friend Sam hosted a happy hour for LPs, which he invited me to. There I caught up with a former fund-of-funds (FoF) manager who has booked some of the most impressive returns I’ve ever heard of for a pure FoF play. For context, more than one fund generated over 15X net distributions to their LPs. The numbers were enough to impress me. But I had to ask: “Across all the funds you were a part of, what is something that you look for that you’re reasonably confident others don’t?”
He said two things, but one stood out. “Gratitude. I look for managers who never forget who put them in business.”
In all honesty, I found that odd. Not because I disagreed. I love folks who recognize and are grateful to the people who got them to where they are today. But because it didn’t occur to me that it should be the top two things one should optimize for when picking managers. Naturally, it kept gnawing at me.
In my own experience, gratitude seems to compound. Grateful individuals thank you often and sometimes when you least expect it, and more often than not, assuming you’ve done real work to help them, they compliment behind your back. The people they talk to end up learning about you. Their teammates learn about you. And you’ve earned multiple occasions to meet their teammates and those close to them. When a GP or founder’s teammates leave and start new things, those people often think to call you first.
Grateful GPs often hire talent who are just as humble, and in turn, as second nature, extend their appreciation often. Those same GPs are more likely to invest in people who have similar traits as well. So, it begins this flywheel.
As an LP, I look for emerging GPs whose network and deal flow compounds over time. That the first moment I meet them is the smallest network they will ever have again. So I expect and underwrite a GP’s ability to compound deal flow over time. So Fund n+1 is better than Fund n, and Fund n+2 is exponentially better than Fund n. Gratitude is one way GPs can increase the surface area for serendipity to stick. For there to be more quality inbound opportunities in the future.
Photo by Jonny Gios on Unsplash
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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.
Thanks David, that’s really well sail. It made me think how positive stories shared can create flywheels of positive impact of their own.
🙂