What Lps Should Consider When Choosing Gps

3 steps Limited Partners should take before handing over $100,000. With social media-driven fundraising, LPs risk exposing themselves to nasty shocks by bypassing traditional due diligence. In the past, LPs got the short end of the stick, with little room for negotiation. But as capital becomes scarcer, you need to be more demanding. 3 steps to protect your hard-earned cash: 1) Speak Directly with Other LPs Request contact info for other LPs who've invested with the General Partner (GP). Ask specific questions about: • Speed of capital return • Return on invested capital (ROIC) • Duration of the investment Does the LP plan on participating in the next fund? If not, why not? Talking directly to other LPs provides the ultimate ground truth about a GP's track record. 2) Verify Claims and Demand Documentation Ask detailed questions about financial projections and statements. Request supporting documentation for any claims made by the GP. E.g: Does the GP claim to have debt under specific terms from a bank? Ask to speak with the loan officer to confirm the terms and the bank's view of the relationship If a GP resists or pushes back on your questions, consider it a red flag. 3) Evaluate GPs on Merit, Not Celebrity 100,000 social media followers or ‘influencer’ status doesn't guarantee a sound investment. Base your decision on the GP's: • Track record • Financial projections • Business relationships Don't rely on the "diligence through network" fallacy. Just because your successful friend is in for $500,000 doesn't make it a good idea. Many have lost millions this way. Bottom line: Don't be afraid to ask tough questions. It's your hard-earned cash on the line. Trust is earned, not assumed. ____________________________ Hey, I’m Adam, an Entrepreneur, Business Operator and Investor. Sharing my experiences here to help others. Enjoy this? Consider reposting to help someone in your network!

The Six Ps of Venture Capital General Partners (GPs): Part I - People In venture capital, trust in the General Partner (GP) team is crucial for Limited Partners (LPs) evaluating long-term investments. The "Six Ps" framework offers a comprehensive approach to assess GPs, starting with the first and most critical: People. Why People Matter "People" covers everything from a firm’s founding and management to team composition and personnel turnover. LPs must evaluate these factors to ensure they partner with a capable and aligned team. Key areas of focus include: Firm Purpose and Creation: Why was the firm established? Was it to fix gaps in the industry or simply a reaction to past experiences? A firm’s founding story should demonstrate clear differentiation and alignment with its mission. Management and Ownership: Understanding who owns the firm, who makes decisions, and how roles are balanced is key. A well-run GP balances deal-making, fundraising, and operational management effectively. Investment Team Dynamics LPs must assess the team’s ability to execute strategy effectively by examining: Diverse Skills: A complementary team reduces groupthink and adds depth to decision-making. Succession Planning: GPs must have plans for continuity in case of key departures. Key Questions for LPs to Ask GPs Why Was the Firm Created? Does the origin story reflect a clear vision and operational alignment? Who Runs and Owns the Firm? Are responsibilities and ownership structured for long-term stability? How Aligned Are GPs with LPs? Are GPs invested in the fund’s success, sharing both risks and rewards? What Functions Are Outsourced? What’s handled externally, and how does it affect accountability? Longevity and Turnover A stable team is vital for trust and strategy execution: Key Personnel and Turnover: LPs should assess the importance of individual team members, past departures, and future hiring plans. Experience Distribution: Avoid being misled by “cumulative experience” claims; focus on team collaboration and cycle-tested expertise. Takeaway for LPs The "People" behind a GP define its credibility and capability. By evaluating the firm’s origins, team dynamics, and alignment, LPs can better gauge its ability to deliver results. Stay tuned for Part II, where we’ll explore Philosophy in the Six Ps framework. #venturecapital #fundraisingforgps #generalpartner #vcs #sixpsframework #lps #limitedpartners #pitchbooks

My Hustle Fund co-founder and friend Shiyan Koh recently wrote a blog post breaking down the key aspects to focus on when assessing a fund for investment. Whether you're a prospective limited partner (LP) or a fund manager trying to understand how you'll be evaluated, here's how to do your homework: - Unique Strategies: What sets their strategy apart? Is it sourcing capabilities, deal-winning skills, or post-investment support? - Pitch to Founders: In a capital-rich environment, why do founders choose a specific fund? Capital is ultimately a commodity - understanding this can reveal the true value provided. - Team Dynamics: How do General Partners (GPs) collaborate? Diverse teams often lead to better decision-making. - Economics and Incentives: Look for funds with fair economics that encourage junior staff growth. - Future Plans: Assess their vision for lasting growth and portfolio construction strategy. - Valuation and Diligence: Understand their approach to valuation and how their diligence process varies across stages. - Competitive Edge: Ask for examples of how they secured competitive deals and what unique value they bring to the table. - Exit Strategies: Know when and how they plan to take money off the table. - Anti-Portfolio: Can they discuss missed opportunities? This shows their ability to learn and adapt. - Chemistry and Trust: Ultimately, do you believe this fund will act in the best interests of its LPs? Evaluating a standout fund is a nuanced process. Each interaction helps build a comprehensive picture of the fund’s potential. Read Shiyan's full post here: https://lnkd.in/g8muGrTx

Chatted with a lot of emerging fund of funds managers recently & a lot of them are really smart Definitely excited to see more of these This post is more/less why + how I think about underwriting Fund II GPs: There's a complexity premium to be paid for underwriting Fund I/IIs Fund I fundraises are at an all time low That said, I don't think anyone who can be a GP should be a GP At the same time we're potentially losing out on some of the best vintages since 2007 Most Fund IIs fundraising today have a Fund I of the 2021/22 vintage, meaning most of their portfolios have yet to raise subsequent rounds The memo in '22 was also raise so you won't have to again for a long time, aka longer runway IRR is near zero for the most part & too early to fit into the 25% IRR underwriting for VC Even if they aren't, too early to tell for overall portfolio health It takes 5-7 yrs for a fund to fall into its respective quartile Same for DPI & TVPI (negligible) So LPs need to look beyond the IRR, TVPI, DPI metrics to get to conviction around a Fund II GP Largely around 2 things: 1/ discipline 2/ quality of the portfolio 1️⃣ Discipline - Did the VC do what they'd say they'd do? (ie # of investments, pacing, chk size, ownership, verticals, stage) then compare/contrast current portfolio to Fund I pitch deck 2️⃣ Quality of portfolio - while not all encompassing, this is what I use - rev growth rate YoY (loose proxy for IRR) - speed to 1M ARR, speed to 10M ARR - net rev retention (if the co never got another new customer, how much can rev grow) aka can founders upsell -customer satisfaction - rev/employee (how cash efficient are they) - burn rate or burn multiple (how much is needed to gain $1 of rev) Having a VC background is super useful for point #2, which frankly is a large part of the complexity premium that justifies imo FoF and their diligence/underwriting Most LPs don't have a team with robust direct investment exp & mostly follow signal on co-investments Sometimes an investment into a FoF is cheaper (in terms of fees) than building up one's own FoF practice

What LPs Should Consider When Investing in Emerging VC Managers Fund are actually pretty complex but when they work, everyone wins! In 2020/2021, I invested in four Emerging Manager VC funds (each <$10M in size) and learned valuable lessons while meeting with 50 General Partners (GPs). As an active angel investor, I sought insight, deal flow, and potential co-investments. However, I didn't fully grasp the fundamentals of starting, running, and managing a successful fund. It's easy to write a check, but it's crucial to understand what you're investing in. While I met fund managers and understood their thesis at a high level, I admittedly didn't delve into the details of their Limited Partnership Agreement (LPA). Although nothing bad or nefarious happened, I strongly recommend that any potential Limited Partner (LP) considering a fund investment should understand how it actually operates, just as an investor should know how notes, SAFEs, and priced rounds work. Key Factors to Evaluate Here's a comprehensive guide on what you, as an LP, should evaluate when considering an investment in an emerging venture capital fund: 1. Capital Contributions Understanding your capital commitment is crucial: Commitment Size: How much capital are you committing to the fund? This could range from smaller allocations in micro-funds to larger commitments in more established pools. Capital Call Schedule: How often will the GP call capital? Is it in stages as the fund finds investments, or are they asking for upfront contributions? A clear understanding helps you manage cash flow expectations. 2. Management Fees Management fees significantly affect your returns: Standard Fee: Most funds charge around 2%, though this can vary depending on fund size and strategy. Fee Schedule: How are these fees applied? Is the fee front-loaded in the first few years when most investments are made, or is there a drop in fees as the fund matures? Sometimes fees taper off after the investment period, reducing operational costs as investments begin to exit. 3. Carry Structure Carry, or carried interest, is the share of profits that the GP earns after the fund's returns exceed a set benchmark: Typical Carry: Most funds offer 20% carry, though some emerging managers may offer more favorable terms, like 15% carry, to attract investors. Hurdle Rate: Look for any hurdle rates, such as an 8% preferred return that the fund must achieve before the GP receives carry. This ensures that LPs see a baseline return before profits are shared. Why Invest in Emerging Managers? Because they’re awesome and the foundation of the entire tech, startup world!

How do LPs build conviction in venture capital emerging fund managers without a DPI or track record more generally? It’s a question every fund I or II GP is thinking about, and it recently came up in a conversation with LPs who've backed dozens of managers over the years. Here are the real markers that help LPs get to yes: 🎯 𝗗𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝘁𝗶𝗮𝘁𝗲𝗱 𝗔𝗰𝗰𝗲𝘀𝘀 𝘁𝗼 𝗙𝗼𝘂𝗻𝗱𝗲𝗿𝘀 Seed is risky. But being an emerging manager doesn’t make you inherently riskier IF you can show why high-quality founders want to work with you. It's essential to articulate your "right to win" because you don't have a track record yet. 👀 𝗙𝗼𝘂𝗻𝗱𝗲𝗿 𝗥𝗲𝗳𝗲𝗿𝗲𝗻𝗰𝗲𝘀 & 𝗦𝗼𝘂𝗿𝗰𝗶𝗻𝗴 𝗔𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲 Track record is helpful, but founder references, past deal access, and your ability to source uniquely matter more early on. LPs are asking: Where are you fishing, and is it a pond others can’t access? 💸 𝗦𝗸𝗶𝗻 𝗶𝗻 𝘁𝗵𝗲 𝗚𝗮𝗺𝗲 GP commitment is perceived as a signal of alignment. LPs want to see that you’ve burned the boats, that this fund is your singular focus, and your capital is in it alongside theirs. 🤝 𝗣𝗿𝗼𝗱𝘂𝗰𝘁-𝗠𝗮𝗿𝗸𝗲𝘁 𝗙𝗶𝘁 𝘄𝗶𝘁𝗵 𝗟𝗣𝘀 LPs look for the same things they look for in startups: product-market fit. Are you the right GP for them based on strategy, stage, geography, or relationship history? 🧠 𝗠𝗲𝗻𝘁𝗮𝗹 𝗧𝗼𝘂𝗴𝗵𝗻𝗲𝘀𝘀 & 𝗚𝗿𝗶𝘁 Managers aren’t just fundraisers—they’re founders building a firm. LPs are watching for signs of resilience, unshakable self-belief, and a long-term mindset. One way to think about it: LPs evaluate GPs like you evaluate founders. Fund I is your seed round. Fund II is your Series A. What have y'all seen that helps LPs build conviction in GPs? #EmergingManagers #LPInsights #VentureCapital