Tag: equal ventures

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LP Relationship Management: The 2 Frameworks You Need to Build Trust

A while back, my friend Augustine, CEO and founder of Digify, asked me to write something for his company, Digify’s blog, about how I think about maintaining relationships between fundraising cycles when I was still an investor relations professional. As such, I wrote a mini two-part series on the frameworks and tactics I use to maintain LP relationships. Been given the liberty to cross-post on this humble blog of mine, in hopes that it helps any emerging managers or IR professionals here.

Voila, the first of two!

Author’s note [aka me]: My promise to you is that we’ll share advice you’ve likely never heard before. By the time you get to the end of this article, if you’re intimidated, then we’ll have done our job. Because that’s just how much it takes to fight in the same arena as people I’ve personally admired over the years and work to emulate and iterate daily. That said, this won’t be comprehensive, but a compilation of N of 1 practices that hopefully serve as tools in your toolkit. As such, we will be separating this piece into Part 1 and 2. The first of which is about overarching frameworks that govern how I think about managing relationships. The second of which focuses on tactical elements governed by the initial frameworks brought up.

One of the best pieces of advice I got when I started as an investor relations professional was that you never want your first conversation with an allocator to be an ask. To be fair, this piece of advice extends to all areas of life. You never want your long-anticipated catch up with a childhood friend to be about asking for a job. You never want the first interaction with an event sponsor to be one where they force you to subscribe to their product. Similarly, you never want your first meeting with an LP to be one where you ask for money.

And in my years of being both an allocator and the Head of IR (as well as in co-building a community of IR professionals), this extends across regions, across asset classes, and across archetypes of LPs.

So, this begs the question, how do you build and, more importantly, retain rapport with LPs outside of fundraising cycles? The foundation of any successful LP relationship lies in consistent engagement beyond capital asks.

To set the context and before we get into the tactics (i.e. what structured variables to track in your CRM, how often to engage LPs, AGM best practices, etc.), let’s start with two frameworks:

  1. Three hats on the ball
  2. Scientists, celebrities, and magicians

“Three hats on the ball”

This is something I learned from Rick Zullo, founding partner of Equal Ventures. The saying itself takes its origin from American football. (Yes, I get it; I’m an Americano). And I also realize that football means something completely different for everyone based outside of our stars and stripes. The sport I’m talking about is the one where big muscular dudes run at each other at full force, fighting over a ball shaped like an olive pit. And in this sport, the one thing you learn is that the play isn’t dead unless you have at least three people over the person running the ball. One isn’t enough. Two leaves things to chance. Three is the gamechanger.

The same is true when building relationships with LPs. You should always know at least three people at the institutions that are backing you. You never know when your primary champion will retire, switch roles, go on maternity leave, leave on sabbatical, or get stung by a bee and go into anaphylactic shock. Yes, all the above have happened to people I know. Plus, having more people rooting for you is always good.

Institutions often have high employee turnover rates. CIOs and Heads of Investment cycle through every 7-8 years, if not less. And even if the headcount doesn’t change, LPs, by definition, are generalists. They need to play in multiple asset classes. And venture is the smallest of the small asset classes. It often gets the least attention.

So, having multiple champions root for you and remind each other of something forgotten outside of the deal room helps immensely. Your brand is what people say about you when you’re not in the room. Remind people why they love you. And remind as many as possible, as often as possible. This multi-touch approach is essential for nurturing a robust LP relationship strategy.

Scientists, celebrities, and magicians

My buddy Ian Park told me this when I first became an IR professional. “In IR, there are product specialists and there are relationship managers. Figure out which you’re better at and lean into it.” Since then, he’s luckily also put it into writing. In essence, as an IR professional, you’re either really good at building and maintaining relationships or can teach people about the firm, the craft, the thesis, the portfolio, and the decisions behind them.

To caveat ‘relationship managers,’ I believe there are two kinds: sales and customer success. Sales is really capital formation. How do you build (as opposed to maintain) relationships? How do you win strangers over? This is a topic for another day. For now, we’ll focus on ‘customer success’ later in this piece.

There’s also this equation that I hear a number of Heads of IR and Chief Development Officers use.

track record X differentiation / complexity

I don’t know the origin, but I first heard it from my friends at General Catalyst, so I’ll give them the kudos here.

Everyone at the firm should play a key role influencing at least one of these variables. The operations and portfolio support team should focus on differentiation. The investment partners focus on the track record. Us IR folks focus on complexity. And yes, everyone does help everyone else with their variables as well.

That said, to transpose Ian’s framework to this function, the relationship managers primarily focus on reducing the size of the denominator. Help LPs understand what could be complex about your firm through regular catchups—these touchpoints are crucial for maintaining a strong LP relationship:

  • Why are you increasing the fund size?
  • Why are you diversifying the thesis?
  • How do you address key person risk?
  • Why are you expanding to new asset classes?
  • Are you on an American or European waterfall distribution structure?
  • Why are you missing an independent management company?
  • Who will be the GP if the current one gets hit by a bus?

The product specialists split time between the numerator and the denominator. They spend intimate time in the partnership meetings, and might potentially be involved in the investment committee. Oftentimes, I see product specialists either actively building their own angel track record and/or working their way to become full-time investment partners.

One of my favorite laws of magic by one of my favorite authors, Brandon Sanderson, is his first law: “An author’s ability to solve conflict with magic is directly proportional to how well the reader understands said magic.”

In turn, an IR professional’s ability to get an LP to re-up is directly proportional to how well the LP understands said magic at the firm.

My friend and former Broadway playwright, Michael Roderick, once said, the modern professional specializes in three ways:

  1. The scientist is wired for process. The subject-matter expert. They thrive on the details, the small nuances most others would overlook. They will discover things that revolutionize how the industry works. The passionately curious.
  2. The celebrity. They thrive on building and maintaining relationships. And their superpower is that they can make others feel like celebrities.
  3. The magician thrives on novelty. Looking at old things in new ways – new perspectives. The translator. They’re great at making things click. Turning arcane, esoteric knowledge into something your grandma gets.

The product specialists are the scientists. The relationship managers are the celebrities. But every IR professional, especially as you grow, needs to be a magician.

Going back to the fact that most LPs are generalists, and that most venture firms look extremely similar to each other, you need to be able to describe the magic and your firm’s ‘rules’ for said magic to your grandma.

For the next half, I’ll share some individual tactics I’ve worked into my rotation. Most are not original in nature, but borrowed, inspired, and co-created with fellow IR professionals.

This post was first shared on Digify’s blog, which you can find here.

Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

Any views expressed on this blog are mine and mine alone. They are not a representation of values held by On Deck, DECODE, or any other entity I am or have been associated with. They are for informational and entertainment purposes only. None of this is legal, investment, business, or tax advice. Please do your own diligence before investing in startups and consult your own adviser before making any investments.

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Shoe Shopping

shoe

I went shoe shopping with my partner the past two weekends, and I’ll be the first to plead ignorance to the difference between the B and D suffix for shoe sizes. And even after two weekends, I’m still learning.

I’ve never looked much into shoes. Having spent much of my early life bathed in chlorine (so much that at one point, my hair was brown with blond tips. FYI, for those I’ve never met in person before, I sport naturally black hair.), I’ve spent more time choosing the right $300-400 swimsuit than what I’d wear on my two lower appendages the other eight hours of the day. All that to say, I’m ill-equipped to speak the language of sneakerheads and running shoe geeks.

But just as I’m still learning how shoe geeks around the world understand the finer nuances of heel to toe drop impacting ankle versus knee strain, most founders who haven’t spent the time understanding the nuances of VCs think all money is green. In fact, just last month, I spoke with a founder I randomly met at an event who said, “Money is money.”

And he’s not completely wrong. There is some truth to it. At the end of the day, as investors, we sell money. Moreover, most investors who promise to be helpful are not. As well-intentioned as they are at the time of investment, most fall short of being truly helpful. There are multiple studies that show that founders believe a huge majority of their investors are not helpful.

That said, one of my investor buddies said something quite interesting to me earlier this week. Many founders see investors as saviors not partners. A source of capital to save them when they’re near the gates of hell, but not while they’re building their stairway to heaven. All that to say, as someone who’s been an operator, now a “VC”, but also someone who invests in other VCs, here are some of the nuances I’ve really come to appreciate over the years that I overlooked when I first stepped into the world of entrepreneurship.

Consensus and conviction-driven decision making

Some firms are consensus-driven. Others are conviction-driven. The former requires majority or unanimous buy-in. The latter doesn’t. Neither is universally better than the other, but knowing how decisions are made is extremely helpful. Not only to know who else you need to convince on the team, but also to know how the firm will help you post-investment.

The former is usually a firm where carry is split equally among all partners, so all partners are theoretically incented to see every portfolio company succeed. So as a founder, if you want to rely on the expertise and network of the collective partnership, these are the firms you should pursue. The latter, the conviction-driven ones, are most helpful if you really want one specific partner’s experience. They’ll be the person who takes the board seat. Opportunistically, they may ask for 1-2 junior team members to also have board observer seats. The downside is when and if this partner leaves the firm, there may be a gaping hole in governance as well as interest in the continued success of your company. But otherwise, this will be the partner you will have on speed dial.

I shared a presentation I made recently on LinkedIn. Of which, I share that three kinds of friends in the world. When shit hits the fan at 3AM in the morning…

  1. There’s the friend you call. They see the call. And they go back to sleep.
  2. There’s the friend you call. They see the call. And begrudgingly pick up.
  3. And there’s the friend you call. And as they’re picking up the phone, they’ve got their pants on already and are running out the door with their keys.

Conviction-driven firms, where the partner that pounds the table for you will likely be on you board, or even if not, they’re going to be the third friend. At consensus-driven firms, and I’m clearly being reductive here, you’re more likely — not always — to have the reluctant one or sleepers.

Then it comes down to how the team is compensated. Not something most founders can find out or ask out, but how carry is distributed for each fund matters.

Disagreeableness

I’ve realized a lot of the best investors are quite disagreeable. They have their opinions and are quite vocal about them.

A lot of them quite often score incredibly low on investor review sites. Of course, some just score low on NPS purely because their assholes. But I want to caveat. Assholes are often disagreeable, but not all disagreeable people are assholes.

But it takes a lot of courage to have a contrarian viewpoint that one can back up. You don’t have to agree with it. But it matters. More often than not, these folks will also have negative references. For an LP evaluating VCs, that’s ok. Negative is always better than neutral references. The latter means you’re easily forgettable.

Regardless of whether you agree with these investors or not (equally, if not more true, in great founders), they make you stop and think. And that pause to think makes you a more well-rounded professional, and makes your own opinions more robust when you choose to adopt or not adopt said piece of advice.

There’s a great Steve Jobs line, which I think is quite applicable here. “Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”

Great investors are troublemakers. In a good way.

P.S. To the three verified troublemakers I know who are reading this blogpost, can’t wait for your debut.

Small talk

Small talk was definitely one of those things I was rather dismissive of earlier in my career. Who da hell cares about the weather? Or what you did over the weekend?

But over the years, I realize some of the best investors are remarkably good at this. Not in the sense that they know how to ask great weather questions, but they learn how to build rapport early and quickly. And even better, they get a founder comfortable, honest, and candid about where they are at.

No one’s perfect. Every investor gets that. Most founders often pretend that they are. But a great investor is great at helping a founder realize they don’t have to be, and also get to understand a founder from a personal level. Not jumping straight into the pitch. Or give me your metrics. Or how much are you raising at how high of a valuation?

Radical candor

Borrowing this phrase from the amazing Kim Scott, the best investors are upfront with expectations. They don’t waste your time. Some even go as far as to share what their incentives are. And the harsh reality that they may be wrong many times before they’re right. They don’t beat around the bush. They don’t delay the inevitable. They’re great at ripping bandages off quickly, so they can prioritize their focus on other matters that require more attention. They have tough conversations early and synchronously. The last thing one can ever say about them is that they aren’t thoughtful. It seems remarkably simple, but most cannot do just that.

To be fair, it’s sometimes easier said than done. Even for myself, and I would not even dare to put myself in the category of great, I’ve been berated, gaslit, and shamed (haha!) for giving and attempting to give honest feedback to founders and investors. In fact, I was introed to a fund manager recently for the purpose of giving feedback. When I realized a couple red flags about her fund (namely her raising a $100M fund with no track record), I asked if she wanted feedback. To which, she replied with something to the effect that she only takes feedback from people who invest and that I didn’t deserve to give her feedback.

So I can see why some managers are averse to giving any.

Raising junior talent

I was reminded of this in my recent episode with Rick Zullo. And I noticed Rick is really good at giving credit and lifting up his team. In a soon-to-be-released episode, Eric Bahn from Hustle Fund does the same. I’ve asked him to speak at events before and he’s often referred one of his junior team members to the event. Not as a “I don’t want to do this, so someone else should”, but as a “I believe XX person will be a great future leader of this firm, and I believe others need to hear her insights.” And he’s been right every time.

Building an institutional firm takes more than one person. It takes a village. To build a legacy also requires more than one generation. I often see great investors taking less credit and giving a lot more to their team. Those often hidden from the limelight.

Discipline

Every great investor I know does something consistently every day. They set ground rules and while it’s less so for others, they hold themselves accountable to do so. Whether it’s a cup of coffee brewed from home every morning, or going to the gym on a daily basis or quality time with family or calling their significant other at a set time every day, I have yet to meet an investor who can’t keep to a promise they made to themselves consistently.

Venture capital is a long game, and it’s very possible for these multi-decade games, to be lucky at least once. Good investors, at some point, hit a unicorn. Great investors can discover many before others do. But any more than twice requires extreme discipline and the ability to say no to things that are good to make room for the great. And it’s so much harder than one might think.

And the simplest proxy to an investor’s ability to do so is their ability to fulfill promises to themselves when no one else is looking.

In closing

    At the end of the day, not all shoes are the same. Just like not all VCs are. But if all you need is to get from Point A to Point B, and you don’t care for what kind of support you get along the way, VCs, like shoes, may all be the same.

    Photo by Hunter Johnson on Unsplash

    Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!

    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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    How to Build an Emerging Manager Community | Rick Zullo | Superclusters | S3PSE1

    rick zullo

    Rick Zullo is the Co-Founder and Managing Partner at Equal Ventures. which invests into the future of four verticals: climate, insurance, retail, and supply chain, and boasts a portfolio including the likes of Threeflow, Leap, Smarthop, Ghost, Starday, David Energy, Leap, Odyssey, Vquip or Texture, just to name a few — many of which Rick serves on the board of.

    Prior to co-founding Equal Ventures, Rick was an investor at Lightbank, an early-stage venture fund based in Chicago, where he led investments in companies like Riskmatch (acquired by Vertafore), Vettery (acquired by Adecco), Neumob (acquired by CloudFlare), Expel and Catalytic amongst others. Prior to Lightbank, Rick worked with investment firms Foundation Capital, Bowery Capital, and Lightview Capital, investing in technology companies across the capital spectrum from seed-stage to buy-out and began his career as a strategy consultant at Deloitte Consulting.

    Rick received an MBA with Honors from Columbia Business School and graduated from the University of Richmond where he studied Economics and Leadership Studies.

    You can find Rick on his socials here:
    X/Twitter: https://x.com/Rick_Zullo
    LinkedIn: https://www.linkedin.com/in/rickzullo/

    And huge thanks to this episode’s sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

    Listen to the episode on Apple Podcasts and Spotify. You can also watch the episode on YouTube here.

    Brought to you by Alchemist Accelerator.

    OUTLINE:

    [00:00] Intro
    [00:42] Rick’s book and how Rick thinks about his habit of writing
    [05:45] How Rick became a VC
    [11:36] The speed Rick listens to audiobooks
    [12:38] How Sendbird closed their first customer
    [14:20] Is networking a feature or a bug in VC?
    [17:59] Rick’s three hat framework
    [26:07] Growing up with a stutter and weak knees
    [35:58] Going from getting a job in VC to starting a firm
    [46:42] What motivated Rick despite how hard it was to raise Fund I
    [57:16] What makes EMC different from other emerging manager communities?
    [1:04:03] How does Rick help people become vulnerable at EMC?
    [1:15:25] What’s broken with venture
    [1:18:50] Rick’s hot take on funds of funds
    [1:22:04] “Seed stage is the worst stage to be investing into”
    [1:27:54] Asymmetric insight and asymmetric value add
    [1:33:00] How to pick board members as a founder when VC currently has high turnover
    [1:39:54] What should people know about Rick that he isn’t already known for?
    [1:42:55] Thank you to Alchemist Accelerator for sponsoring!
    [1:43:55] If you enjoyed this GP episode, do let me know in the comments or in DMs!

    SELECT LINKS FROM THIS EPISODE:

    SELECT QUOTES FROM THIS EPISODE:

    “Everyone in venture is networking and not working.” – Rick Zullo

    “When I played football once upon a time, our coach [was] screaming at us, ‘Three hats on the ball! Three hats on the ball!’ The runner wasn’t down until we had three helmets tackling them.” – Rick Zullo, on staffing at a VC firm

    “Historically, if you look at the last 10 years of data, it would suggest that multiple [of the premium of a late stage valuation to seed stage valuation] should cover around 20-25 times. […] In 2021, that number hit 42 times. […] Last year, that number was around eight.” – Rick Zullo (circa 2024)

    Follow David Zhou for more Superclusters content:
    For podcast show notes: https://cupofzhou.com/superclusters
    Follow David Zhou’s blog: https://cupofzhou.com
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