Possibly the quiet thing out loud, one of the best parts about demo days is the excuse to catch up with old friends. Yes, we do go there to see deals, but realistically, many of us would have started the conversations with many of the demoing class before demo day. This is not only true for VCs at startup demo days, but equally so for LPs at emerging manager demo days.
Earlier this week, my friend invited me to go to his emerging manager demo day. I’ve always admired how intentional he’s been with picking, so it was a natural yes. The pitches came and gone. And as the networking part kicked off after, a few LP friends and I came together to catch up but also to compare notes. What did we think of Fund A? Fund D? Who was interesting? Who would we take a second conversation with? And why?
Naturally, we shared our respective decision-making frameworks. A lot of which overlapped. Others were more unique to each LP themselves. Simply because the motivations of LPs often differ from each other. Some do so for co-investment opportunities. Others invest in VC as an asset class. And there are also those that invest to pay it forward.
So while it’s not my place to share the words whispered to me in confidence, here are some general takeaways:
- Unlike startup pitches, there is no consistency of pitch format among emerging managers.
- Most GPs don’t seem to know what kinds of metrics/facts immediately stand out to an LP. One such GP buried an amazing angel track record TVPI as one line in his deck.
- Humor sells.
- Spinouts are only interesting if your track record is portable. In other words, if you were too junior on the team to have pounded the table for deals, you don’t count as a spinout in some LP’s minds.
- Unscripted moments are memorable. At least ones that feel unscripted.
- DPI earned within 5 years (as opposed to 5+ years) begs the question of where does it come from (i.e. secondaries, acquisition, etc. Former will lead to yellow flags.)
- Track records that began post-2019 have an asterisk next to them.
That said, if it may be helpful to not only GPs, or other LPs out there, I’ll share my own calculus below.
I want to preface that the goal of the below “checklist” is for me to quickly decide which GPs I should follow up with, given limited information in the format of a 5-minute pitch. As such, this isn’t all-inclusive, but simply answers the question: Is this fund/manager interesting enough for me to spend another hour with them?
I will also say that this works best for me particularly for Funds I and II.
And one more thing, I’m still a WIP. In other words, this is the checklist that suits my current needs the best, but your mileage may vary.
The Demo Day checklist
At a high level, below are the five categories that are the most interesting to me.
- Sourcing — Are they fishing in differentiated pools? Do they have proprietary access to deals? Where are they finding diamonds in the rough?
- Picking — This can be interesting in two ways: (a) track record (which only starts to become interesting after 5+ years with 20+ deals), and/or (b) decision-making framework/algorithm.
- Winning — Why do the best founders pick you? How much ownership can you get in these companies? Some examples here.
- Likability — You’re either very likeable or contrarian. Anything else just isn’t memorable. And if not memorable for me, likely not memorable for founders. In many ways, I’m looking for ways you stay rent free in a founder’s mind when they know nothing else other than the fact that you invest in early stage companies. ‘Cause let’s be honest; most firm’s websites say just that and nothing more. Some might call this GP-founder fit. Others call it vibes.
- Uniqueness — A bit amorphous here, but really, it’s just: Is there something I’ve never heard of before?
- As a caveat, I only started including this “pillar” after I saw about 200 decks and pitches. Before that, I simply didn’t know what counted as unique and what didn’t.
And for each category, I give 4 different kinds of scores.
| ✔️ | There’s something special here. Worth digging deeper. If I continue on to diligence, this is usually the first thing I reference check. |
| 〰️ | No strong opinion here and/or there’s no edge here. |
| ❌ | I use this extremely sparingly. This is a sign of a red flag. In fact, there are very few red flags that can even come out in a 5-minute pitch. So really, I only use an X when I feel the fund manager is sharing something dishonest. |
| Yes, that’s a blank space. Meaning the pitch itself failed to offer any reference point or evidence on this variable. |
And for the five categories above, having a check mark in at least two of them is enough for me to say yes to another conversation. No single A+ trait standing in pure isolation. But only one X is enough for me to pass.
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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.