Not too long ago, I was catching up with the amazing Owen Willis, someone I’ve been lucky to see in action during our time at On Deck together, who now runs Opal Ventures. And there was one thing he mentioned that I cannot stop thinking about.
As a fund manager, there are things you can control. And things you cannot.
So often, many a fund manager focus on things they cannot. The market. In many ways, marks. And not enough on things, they can. Chief of which, communication. What. How. When.
Are your LPs hearing about news on you or your portfolio — good and bad — from you or from another source?
What are you seeing in the market? What is your insight into it? Why? After all, LPs pay you for your opinion.
And how frequently do you maintain an open line of communication with your LPs? Do you share everything? Or only the good? Do you miss regular updates because of how busy you get?
To nosedive a level deeper, as a GP, what are your most powerful tools of communication with LPs? Not to lead the witness, but you’ve probably figured it out. LP updates. Many GPs I meet tend to only have one type. At best one and a half.
There’s the update GPs send your existing LPs. But they also understand the value of prospective LPs, so they end up sending the exact same to prospects. Maybe with some numbers redacted (if it includes sensitive information on the portfolio). Most of the time, that’s it. But really, it’s helpful to think about existing and prospects as two different audiences. The former will naturally be disposed to support. The latter is still deciding if they want to support. They have yet to be converted.
As such, instead of one, there should be two types of LP updates. To make it simpler, one is for “customer success.” The other is for “sales and BD.”
The “customer success” update
There’s a lot of content on this front already, so I’ll spare you the extra verbiage here. But if you want a place to start, I’d recommend the below first:
But to provide a brief summary (plus, a snazzle dazzle of the Cup of Zhou perspective), typical LP updates I see have:
- The Abstract / TL;DR / What to know if you only had 2 minutes
- Performance (TVPI, DPI, IRR, new investments, % deployed, % left, % capital called, and (if so) did you preemptively mark down portcos and why)
- Net New Investments — 2-3 lines about each company + what’s promising + why’d you invest + website link + key highlights (you’ll need sign off from your founders for this last one)
- Asks — for your portfolio and for your fund
- Team updates — if your team changed (i.e. new hires)
- General portfolio updates — the good, the bad, the ugly
- Capital call schedules / Legal stuff if any
- Insights into the market (if any)
In general, you want to tell your LPs if there are any updates before they find out about them themselves. Better to hear from you than from other channels.
Lastly, I like personal flare and highlights as well. But hell, that’s up to each GP’s preference.
The “sales” update
So, there will be some overlap of information with the earlier type of update. With some redactions, particularly the specific numbers on the portfolio side. That said, rather than what goes in it, what might be more helpful is how to think about it.
Sales, like in any other industry, requires you to know your customer.
Some general framing questions:
- Are they the solution to your problem or are you the solution to their problem?
- For instance, are they actively looking to deploy? Why? What motivates them? If not, you might be pushing a rock uphill. If yes, are you actually what they’re looking for, or can you better triage them to a friend who is investing in what they’re looking for. Relationships are long.
- Do they see VC as an access class or an asset class?
- Generally, not always, individuals and family offices see VC as an access class. So they care more about co-investment opportunities, deal flow for them to directly invest, and/or opportunities to learn from you. In other words, these LPs want to see what you’re investing in, who else is validating your investments, and what are you seeing and learning. If you’re a Fund I, you’re probably spending more time with these LPs.
- Institutions, like foundations, endowments, pensions, and fund of funds, see VC as an asset class. As such, returns and performance matter a lot more. So the best ways to convince them is to let the numbers do the talking AND how close you stick with your initial strategy and if you deviate, why. Promise fulfillment, or in LP lingo, consistency of strategy, matters just as much as returns, if not more, once return profiles measure up to 3-5X across several years. Or when and how quickly DPI hits 1X. If you’re a Fund II+, you’re probably spending more time prospecting these.
- Are you looking to institutionalize your fund? To go from a fund to a firm?
- If so, how do you set yourself up to grow in team? How are you knocking out key risks one by one?
- And in a loose way, not for an LP update, what happens once you get hit by a bus?
- What kind of cadence makes sense for you and is enough to keep you top of mind for these LPs?
- Including events you’re hosting or when you’re visiting certain geographies are always a nice added bonus.
And lastly, getting feedback is always important. As you might suspect. So that your communication between both your existing and prospective LPs only improves over time.
Photo by ANDY ZHANG 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.