A good friend, who’s hosting an annual general meeting (AGM) for his LPs in his first year of the fund, pinged me the other day asking if he should include the IRR metrics in his presentation day of. For context, it was negative because well, that’s how the math works. It’s almost always negative for any venture fund you invest in, in years 1-3. As you’re investing more money, the portfolio has yet to get marked up and raise a new round. So alas, negative rate of return.
Given that he had a lot of first-time LPs in his fund, he wasn’t sure if they would understand the context of the IRR metric if he just put it on a slide. So he was biased with not including it. To which I responded with… of course you should. For the bread and butter of being a fiduciary of capital, you should always bias towards transparency and honesty. But you should educate them every year in your first three years of the fund on what each number means and what is industry standard. Moreover, the biggest thing you’ll be measured against in the first three years of any fund is the discipline you exhibit. Did you do what you said you were going to do?
Then it brought on a larger question. What should GPs include in their AGMs in the first three years?
So I thought I’d write a blogpost about it.
This won’t be a two-hour documentary, nor a 300-page novel. But rather, just the governing principles of how I think about running annual summits for your LPs. So, as a general compass for the rest of this post:
The basics
First things first, the basics. What are the metrics to share?
- MOIC and/or TVPI
- I prefer both gross and net, but most really just share net
- IRR
- # of investments (total)
- Capital called
- Capital deployed
- # of investments per pillar/vertical in your thesis (if relevant)
- # of investments broken down by stage (if relevant)
- Average check size
- Average entry ownership
- Average entry valuation
- Notable wins / progress in portfolio companies, and why it matters
- Asks for LPs
- Where is the market today?
- Where is it going? Notable trends
The first 10 are required as a fiduciary of capital. The last 4 means you’re playing professor for a bit. LPs invest in you for your opinion, for your perspective. Also it’s important to note, if more than 20% of your LPs are first-time LPs, you may want to lean more on being a professor of sorts to set expectations. And how to interpret your data. And yes, it’s worth being honest here. In good and bad times.
Do note that in the first 2-3 years, your IRRs will suck. TVPI will be roughly 1X. DPI is either negligible or non-existent. These are all things that are worth highlighting to first-time LPs in the venture space. Focus on why discipline matters more than performance in the first 3-4 years. Did you do what you said you would do?
Also, it is quite normal to invite both your current fund LPs, as well as the LPs you would like to have one to two funds from now. Although if you’re inviting the latter, do be cognizant on sharing sensitive data about your portfolio. Regardless, the AGM is an opportunity to deepen any relationships — current and future.
And, just like a Dreamforce or TwitchCon or WWDC, it’s a chance to reinvigorate your audience about why they should care about you.
Content at large
I’m not the first to say it, nor is it the first time I’m writing about it. For instance, here and here. But GPs are evaluated on primarily three things: sourcing, picking, winning. There are more yes. GP-thesis fit. Differentiation. Portfolio construction. Ability to build an enduring firm. Selling and exiting positions. And so on. But if VCs can boil everything down to team, market, and product, this is the LP equivalent.
And well, the truth is you’re always being evaluated. Even after the fundraising sprint. As in another 2-3 years, you’re going to ask the same LPs to re-up their capital, just like a founder to a multi-stage VC would.
All that to say, in the AGM, you should find ways to highlight each through the content you present. To share some examples:
- How you source
- Have your companies share how you first met. The crazier the story, the better.
- If you have a community/newsletter/podcast, bring in a really high quality advisor or speaker from there.
- If you champion yourself on outbound sourcing, find an impressive speaker that you cold emailed.
- How you pick
- Showcase 1-2 companies with strong growth
- If you had a track record prior to the firm with an obvious win (i.e. you were a seed investor in Airbnb), bring the founder in to speak.
- Share market insight that no one else knows. What is your prepared mind?
- Request for startups.
- How you win
- Showcase a skillset that you have through someone else. That someone else can be a former colleague, a name-brand co-investor, or founder. Have them talk about you and that skillset. Stories are always better than facts.
- Showcase 1 hot company in your portfolio that everyone wanted to get access to but only very few got in. Have that founder share why they picked you.
Of course, you don’t have to be explicit with the above, but nevertheless, a useful framework for planning content.
Also please don’t have your entire portfolio present. Nor any more than 4-5 companies. Two is ideal. Ideally, you want a diverse cast of speakers. And I mean, diverse by job title.
Gifts
I’m always biased towards gifts. It is one of my primary love languages, but also in any event I host or help host, I think a lot about surprise and suspense.
Surprise is relaying information to someone where they do not expect it. Suspense is relaying information where they expect it, but don’t know how or when it’ll drop. Surprise is what gets people talking about your event after. Suspense is what brings people to the event.
The earlier section on content is suspense. Gifts are usually surprises at AGMs.
In terms of what kinds of gifts to give, the most important guiding principle here is to be thoughtful. As Zig Ziglar / Mark Suster once said, ” People don’t care how much you know until they know how much you care.”
It’s less about the gift you give; it’s more important about how you deliver it.
Some examples of thoughtful ones I’ve seen at AGMs in the past:
- A GP’s favorite book they read that year
- A signed copy by the author of a deeply meaningful book that shaped the way the GP thinks today
- A letter at each LP’s seat of the first interaction between the GP and each of the LPs.
In closing
AGMs are the one of the few times in a year, hell, in fund cycle, to remind LPs of why they love you. Are they thinking about you when they put together the following year’s budget and allocation schedule?
And yes, you do need to remind LPs on why they love you. Just like, even if you’re in a happy marriage, every so often, you need a date night. Keep the kids at home. Get a babysitter. And do something wild with your spouse.
Pat Grady has this great line. “If your value prop is unique, you should be a price setter not a price taker, meaning your gross margins should be really good.” In a similar way, you want to be a schedule maker, not a schedule taker. And to do so, you need to get people excited. And well, you need to be unique. You need people to look forward to your AGM, and not see it as a chore. Since, let’s be honest; if I’ve been to two dozen or so AGMs, not as an LP in most of them, then a seasoned LP is definitely invited to many more.
Earlier this year, I flew over to San Diego for an AGM. I found out two other friends were also flying in to SD for an AGM that same Thursday. The three of us agreed to catch up during the happy hour, assuming all of us were going to the same one. Turns out, we each went to a different AGM. Same day, same time. All within a 10-minute Uber ride from each other. Spoiler, we later escaped our respective events during the happy hours to catch up elsewhere.
Along the same wavelength, in October this year, I was moderating a talk in a building, where there were two other AGMs happening in the same building at the same time. And three others within a five-block radius in SF… at the same time. Those were only the ones I knew of. That said, it was SF Tech Week.
Simply, you’re fighting for attention. And everything above is just table stakes. It’s the bare minimum. But what sets the great ones apart from the forgettable ones is a reminder of what makes that GP or set of GPs special. Their own flavor. Their own touch. And it’s a combination of thoughtfulness and personality. And if you have those, the small bumps in the road don’t matter.
Hope the above helps.
P.S. Why am I sharing this?
- I don’t think knowledge is ever perennially proprietary. Today it may be, tomorrow it will not.
- If you’re a GP reading this, this is pretty much exactly what I share with all the funds I’ve worked with to help plan their annual summits for LPs. So, you won’t have to hire me anymore to help you with your annual summits. I don’t care about making a living helping other people plan and organize AGMs. But I would like to go to higher quality events in general. 🙂
- A rising tide raises all ships.
Photo by Jakob Dalbjörn on Unsplash
