Home

We’ve spent the last two nights in Fort Worth, Texas.  We stay with my mother when we’re down here, very near the neighborhood where I grew up. We come down to Fort Worth about once a year as we normally visit our lake house a few hours away to see my family. I left Fort Worth in 2001 to move down to Austin for business school; having lived here for the first 27 years of my life. Yet, it still surprises me the sense of nostalgia I get when visiting this town.

I drove by the house where I grew up, the middle school, the railroad tracks, the best friends house. I spent time on TCU’s campus for a meeting. I had lunch at an old haunt in downtown and ordered the same fajitas. Visited some friends in my first office building (which still smells the same). Drove through the now-gentrified neighborhood south of downtown where we used to go eat lunch at the Paris coffee shop. It was funny to have a meeting at a fancy wine-bar there now. Later this morning, I’m seeing a friend and mentor that originally hired me at KPMG for my first “real” job. I’m bringing my girls over to fish on their pond. I’ll see old friends tonight at the TCU vs UT football game and spend time with my parent’s friends that have known me since the beginning.

Fort Worth remains home for me. The place I’m from. That doesn’t mean I don’t love living in Boulder. That doesn’t mean I think Fort Worth is a better place to live or I don’t miss Austin. I don’t have to love one more than the other, they aren’t mutually exclusive. Home is more of a concept, a sense of familiarity, a sense of belonging, much more than a place.

It’s good to be home.  I’ll be wearing purple tonight at the TCU game, cheering for a football team but perhaps I’ll really be cheering being home.

Window Shopping

I’ve got bad news for aspiring fund managers. Fundraising is only getting harder.

I spend a fair amount of time each week connecting with LPs. We may see each other at events and annual meetings, or just set up calls to check in on pipelines and prospects. I’m often trying to get the other LP to focus on some of our Partner Funds that are closing out a fundraise. I want our Partner Funds to have good, supportive LPs and to get back to the work of investing rather than fundraising. In that context, I’m always trying to figure out which, if any, of these LPs have an appetite for new relationships. We are only planning to add a few new names each year as we’ve built out much of the Partner Fund portfolio. I also see our friends at Cendana and Greenspring adding a few seed relationships as they are focused on seed and/or have raised dedicated fund of funds for seed managers. We would welcome more dedicated fund of funds or traditional LPs to join us.

The bad news is that I don’t know a traditional institutional LP that is still looking to build out its seed portfolio. We maintain a long list of LPs that we’ve seen show up in seed funds and have relationships with many of them. The consistent message in all my interactions of late has been a lack of interest or appetite for new relationships. I’m hoping that many of these LPs have just exhausted their annual commitment budgets but I’m afraid it’s something more than that.  

Many of the generalist FoFs and more active traditional LPs have filled their portfolios and will decide to re-up here and there but not add a lot of new exposure. There has been almost no liquidity, and other institutional LPs are dealing with larger funds coming back to market more quickly with little capital/bandwidth left for a seed portfolio. A lot of the individuals and family offices are tapped out after several funds and may have committed more than they intended to a very illiquid part of the asset class.

It’s not a pretty answer for new managers setting out to raise funds. Most LPs are still game to take meetings, especially when you can get another GP or LP to refer you into them. New managers should chase all those meetings and show up in person whenever possible.

However, it feels like many LPs are simply window shopping with no real appetite for making new commitments. We do see the occasional commitment that looks like a spontaneous purchase. We find it really hard to predict these purchases or to know where to point fund managers. We will sometimes see a new LP that hasn’t traditionally done seed VC show up and pull the trigger on a new fund. We’re seeing these from the smaller endowment and foundation crowd these days.

It seems even harder for funds under $50 million, as traditional LPs can’t even really look at these, and only a few FoFs will play in this range. These are getting filled out by family offices with perhaps less than two institutions playing along. Oddly, the smallest funds may be the hardest to raise. Funds less than $25 million are stuck in friends and family territory with individuals, a few family offices, and the GPs at hedge funds, large PE and VC firms as fundraising targets. I struggle with how to help these small funds and where to point them for capital.

Maybe we have enough seed funds already? It certainly feels that way in certain ecosystems. Maybe this is the system beginning to self-govern? We actively support more fund formation, and we’re excited about the explosion of new companies that seed managers are chasing. Part of the Startup Communities and Techstars message is that great companies can be formed anywhere and local capital needs to be grown over time. We can only hope that the market is somewhat rational, funding the right managers that are additive to the system.

I’ll close by wishing all the GPs speed and certainty in closing their funds, even if we can’t invest in all the good ones.  And if you’re an LP that wants to do more than window shop, call me to see what I’m looking at and where I’m investing.

Saying “No” too often is part of being a good investor

 

One of my favorite comments about our Partner Fund portfolio came from a well-known VC at a high-flying fund. She noted that we get to work with “all the good people in venture.” I suppose people are the price of admission for our family. However, we can’t invest in “ALL the good people in venture.”

We plan to invest in roughly 30 total Partner Funds for our current portfolio. We’ve disclosed 15 of those and we have five more in various stages of closing right now. We’ve known some of the funds for years, while others came to us early in their life as they formed a team and strategy. There are another five that we’ve been working with and holding a spot for as they come back to market. That leaves us just a few slots for consideration over the next year.

We start with something we call the “good human” filter. We then look for those opportunities where their strengths match their strategy and fund size. The nuance of balancing these mostly qualitative characteristics is the hard part of getting our Partner Funds strategy right.  

The explosion of fund formation over the last few years and our view into that expanding market has presented us with a wealth of opportunities far beyond our fund size and capacity. We decline quality funds multiple times a week where we know they are “our kind of people” and have a compelling strategy. We wish we could be more prolific, but in these cases we try to give some real feedback and be transparent in our process and decision making. We do our best to make time for good people and hope that we can provide support, if not capital to many of these.

Unfortunately, we have to say “No” far more often than we get to say “Yes”. It is part of being an investor and forces good discipline into the strategy we’ve designed for ourselves. However, we are certainly missing the opportunity to partner with some great firms and good people.  

With so much negativity in the media around our industry, we are glad to see so many “good people” in venture.

Mi Casa Es Su Casa – How we seek to interact with our family of GPs

As we share more about our fund investment thesis on the Foundry Group blog, I also wanted to give more transparency for how we interact with our GPs and how we aspire to help them. I’ve shared the text below from an email that we sent out earlier this year. I hope this provides a window into the form of interaction and collaboration we want to have with our friends and partners. We feel like we have a responsibility to #GiveFirst and act according to a Code of Conduct as LPs. We welcome transparency to the LP world with the #OpenLP movement and I hope we can be leaders in the push to bring this part of the ecosystem into the light.  – LE

 

“Greetings FG Next Partners,

We hope you’re having a great beginning to 2017! Last year was an incredible start for Foundry Group Next. We raised the fund, transplanted a Texan, poached Jaclyn from the glory of big law, and, most importantly, we partnered with 10 great fund managers. We’re appreciative and excited to be working with such an awesome group of GPs and to welcome a few new ones in 2017.

Internally, we refer to our team as a family and our portfolio companies often refer to each other as cousins. We like to think of you as part of that extended family so in our vernacular your portfolio companies are second cousins. Taken together, this creates a meaningful extended network of exciting companies. While we believe that all partnerships and cross-selling should occur organically, we want to encourage this within the ecosystem and are looking for ways for the whole family to engage with and support each other. We’d love to hear any ideas or suggestions.

As we begin 2017, we wanted to touch base with all of you to introduce several new FG Next initiatives we’re rolling out. We welcome your feedback and are open to suggestions. As always, we’re here if you need us.

Thanks,

Team Foundry Group Next

Initiatives:

Slack Channel. As we mentioned, this is an awesome group of GPs. We want you to get to know and learn from each other. You will be receiving an invite to an FG Next GP Slack channel. We encourage you to use the channel to communicate with and support each other the same way your CEOs use the communication channels many of you have created. Use cases might include:

    • Service provider referrals and reviews;
    • Connections to downstream investors;
    • Sharing networks and industry knowledge; and
    • Talent referrals.

While we know that you will occasionally find yourselves in competitive situations, we love to see several of our funds invest in the same company – we see this as a positive signal and are not concerned with diversification risk. We hope this will be an active channel, and we’ll seed it with some questions of our own.

We’re invoking circle of trust/cone of silence, so everything on the channel will remain confidential and only Foundry Group and FG Next GPs will have access. We’ll circulate a list of everyone on the channel so you know who you’re talking to and will announce new GPs as they join the family.

Data Collection and Polling. When asked what we can do to be helpful, many of you responded with “data on X, Y, Z.” We’d like to compile data on various aspects of venture and startups including, LPs interested in venture, compensation (for both companies and funds), financing terms, market trends, and service providers. As you are one of our greatest resources, we may tap your insights using periodic email polls.

Group Discounts. We’ve already rolled out eShares (a big thanks to those of you who have signed up). They’ve agreed to waive the setup fee for our Foundry family. We’re looking into other opportunities to obtain bundled services or discounts for our GPs.

Insider LP/Mentor GP. Part of the goal and purpose of our fund is to bring the entire ecosystem together and interact with you in a different way than traditional LPs. We encourage you to leverage our partnership in the following ways:

    • Fundraising: LP introductions; deck review and pitch practice.
    • LP Relations: LP communications/messaging advice; annual meeting prep.
    • Operations/Strategy: thinking through strategy– fund size, portfolio construction, team, growth, transitions, etc; sourcing/interviewing/vetting potential hires.

Brad, Jason, Seth, and Ryan are available in these ways, as LPs, but can also be supportive as GPs that have been in your shoes. They can weigh in on deal dynamics, specific investors, industry-specific issues, growing pains (for the GP and portfolio companies), founder drama, board structure (and drama).

Mi Casa es Su Casa. We have a great office here in Boulder. Please feel free to hold your off-sites here; Brad also has a retreat center at his house 30 minutes outside of Boulder that is free to use. It’s a great way for us all to get exposure to our broader teams. Boulder is a perfect place to get away from the noise and enjoy the outdoors in a low-key setting. Groups have done a half-day in the office, half-day outside playing, followed by dinner with those of us who are in town to rehash the day. Whatever works for you, we’d love to host!

Best Practices. We’re working on putting together some best practices docs for you–  e.g. must-haves in a pitch deck, LP-friendly reporting, and annual meeting guidelines.

GP References and Referrals. This is more of an ask. As we consider adding new managers to the family, we’d love to get your thoughts, as many of you have worked with our prospective GPs. We’ll send out periodic emails with a list of funds in our pipeline and welcome feedback from those of you who know these GPs well. Cone of silence applies, so you don’t have to worry about your comments getting back to your friends (or foes, as the case may be). We also welcome referrals to your GP friends who might be a good fit for us or would like a friendly LP’s perspective.

Family Dinners. We’d like to get the gang together for a few GP dinners this year. Not to start another East Coast v. West Coast battle, but we’ll probably do one in the Bay Area and one in New York or Boston to make it convenient for you. Jaclyn will follow up with you to identify some dates that would work.

Quarterly Calls. We’ve already got the ball rolling on this one and appreciate you working with us to get these scheduled. Some of you have requested monthly calls– big smiles on our end but we won’t force it on the rest of you. The purpose of these calls is to check in to see how you’re doing and if you need anything from us. We would also like to do a quick review of your portfolio and identify any potential direct deals we should have on our radar. Here’s a description of the types of deals that are a fit for FG Next. We’re always game to talk to founders about later stage fund-raising, even if they’re not currently in fundraising mode. We can also play matchmaker for Series A deals for our early stage fund.”

Venture Risk and Return circa 2017

I put the below note in an email to a friend a few weeks back and I find it’s something I’ve been thinking about and saying over the last year. I figure I might as well be on the record for it!

VC formation is only following and responding to company formation. There has been an explosion of companies and now the same explosion in fund formation. We continue to see company formation accelerate as friction and capital needs are removed from the system. VC is undergoing a similar explosion of funds and managers as the barrier to entry has been lowered (meaning you need less capital) and micro-networks of entrepreneurs are beginning to support each other’s success, sometimes with the benefit of these smaller pools of outside capital. We call them pre-seed, micro-vcs or some other new term but I really see them as a reflection of the changing company formation landscape. Brand and differentiation remain most important at any stage of VC, where the entrepreneur is really the customer. As a VC, you’re vying to attract the right customers at the right price point. They are attracted to brand and success of fellow portfolio companies.

I also firmly believe that definition creep has happened up the scale of rounds. Seed is the old A, pre-seed is the old seed, and B/C rounds are now growth? These multiple rounds remind me of the old milestone rounds where you get more risk decision points. A rounds aren’t as risky as even 5 years ago (and crazy different than 1999) due to previous funding and company progress, plus many types of technology investments get data earlier, provide feedback on whether to continue funding and consume less capital overall to get to profitability. Shorter way to say that is to suggest that upside remains in early stage but should be lower capital loss ratios than prior periods. I don’t think most LPs have figured out that the risk curve may have shifted.  Instead, they probably feel like they are being swarmed and find themselves overwhelmed.

Traditional LPs are seeing the returns from venture and they aren’t sure how to play or what to make of these returns, with many suggesting a bubble will bring all these companies back down to earth. There is no doubt that economic cycles matter and funding will decrease causing some pain. Erik Rannala from Mucker Capital recently had a really interesting take on technological revolutions that provide a big picture view of these cycles that made me think hard about my own views. Worth a read. Nonetheless, we know cycles happen and I don’t expect that to change. That said, I do think the risk curve has shifted meaningfully and you will continue to see early stage venture returns as the most attractive place to deploy risk capital.  I certainly voted with my feet!

Upfront 2017

I’m just getting going for Day 3 of Upfront hospitality here in Los Angeles. Upfront puts together their summit for the benefit of their LPs, entrepreneurs, and broader ecosystem. They do a hell of a job.

It’s become a must-attend event for LPs and GPs alike. That’s saying something. You don’t get this many busy people on a plane multiple years in a row without dropping some real value on them. I see some of my favorite LPs here every year and I think that at least half my portfolio of current and future GP partners is here in the room too. Suster says that I can’t do “lobby con” but what does he expect when I see such a curated list of attendees? I literally sorted and found 105 people that I knew and wanted to see while here!

The reason you don’t just hang in the lobby is that the content is great. Upfront has really pushed the group to consider social and political issues that are sometimes uncomfortable but important beyond our personal economic interests. One example that really resonates with me is the Defy Ventures talk by Cat Hoke. This is a great way for us to use our experience to give back in a more meaningful way! I’m really proud of my partners, Brad Feld and Jason Mendelson, for getting involved and I can’t wait to go to prison with them. See more here.

Upfront also does a great job of supporting their local ecosystem here in Los Angeles. Today is all about the development of this community. Los Angeles deserves much of the buzz you’re hearing in tech circles and it feels like a place that LPs should have exposure to when they think about talent and ecosystems here in the US.

Many of us give Mark the public praise but I know it’s the whole group that gets behind this effort and, in particular, my man Stuart Lander that destroys himself over these three days. A huge thank you to Upfront for hosting us here. I should also add that I’m proud of them and happy to see the team growing and having success! #LongLA

2017 – Off at a dead sprint!

It feels like this year has gone off at a dead sprint.  Perhaps it is seasonal cyclicality and I will see it every year but it’s very noticeable to me right now.  I think everyone caught up/saved up over the holidays and came out ready to rock.  I’ve seen a measurable increased inbound on both the fund formation and direct deal side these last few weeks.

So far, January feels like the first two miles of a marathon. The shot goes off and the field goes off at a dead sprint!  Now we’re a few weeks in and the crowd is spreading out, some people are still going out too hot, and you’re tempted to follow.  It feels good and you don’t want to miss out, you don’t want to get behind your pace, and it feels like maybe you could run ahead of your pace?!?

The good news is that you know your pace. You put together a plan. Your only job is to remember your race plan. Slow down, reduce your fear of getting behind or missing out, and run your own race.

It’s the same thing with a venture fund. Planning and raising a fund is just the beginning.  As you start to deploy your capital, you better have a plan. A plan for your team and a plan for the portfolio. You’re an investor and investors like to invest, the same way that runners like to run.  It’s always easy to say yes and go a little faster. It’s harder to say no. That’s why it’s important to rely on your training buddy or partner to keep yourself honest. Don’t be afraid to slow down.  Don’t be afraid to miss that shiny new deal.  Don’t be afraid to keep yourself honest on price and conviction. You put together a portfolio plan. Know that the race is long and save your capital. Keep those reserves to support your companies when they need it most.  

Rely on your partners, rely on your support team (including LPs), and go run your own race.  We know that the January pace is unsustainable, we know the the crowds will disperse, and that we will find our pace for the year.

I hope 2017 isn’t a hilly course – see you at the finish line.

A tough election and a harder reflection

It was 3:36AM when I checked my phone. I know there are many things wrong with checking your phone at that time but I did it anyway. Then, I honestly didn’t believe the Slack messages from my partners. I went to the WSJ to see for myself. I was wide awake at this point. We have a mess on our hands that I didn’t expect. I needed to process and think about how we begin cleaning it up.

I went to bed early last night, accepting that I couldn’t affect the outcome and thinking that i would at least deal with the results well-rested. Trump was marginally in the lead but I convinced myself that was an aberration and still thought this would end in a higher-than-expected victory for Hillary.

Status quo would continue. We would have two parties, very similar in action, that provoke each other’s base around social and cultural issues to create discord and accentuate differences in policy while still largely acting the same around foreign & fiscal policy amid a strengthening federalist system. I’ve come to the conclusion that the current two-party system is largely driven by entrenched money interests and neither could afford to move off a centrist approach. I wasn’t surprised that a perceived outsider like Trump would get traction but I believed (& still believe) that he is a flawed person. Certainly, he wasn’t electable and my Facebook and Twitter echo chamber reinforced that for me. I and my echo chamber were completely wrong.

The 1% has spoken. Just a different 1%.

“NATE SILVER 2:10 AM
Something to remember: Whatever your feelings about the state of the country right now, it’s fundamentally not that different a place whether the final call is that Clinton has narrowly won or narrowly lost. Add just 1 percent to Clinton’s vote share and take 1 percent away from Trump’s, and she would have won Florida and Pennsylvania, therefore would probably have been on her way to a narrow Electoral College victory.”

I saw this note from Nate Silver on 538.com (which was a great site for understanding flawed polling through the election) and it struck me as very true.

If Clinton had won by the expected slim margin, we could all claim victory and repudiate the xenophobic and racist messages of Trump. We could celebrate even as we continued a split government. We could highlight our system of checks and balances. The world would breath a collective sigh of relief and life would go on. However, that tiny 1% swing vote in a very few polling districts has placed us in a very uncomfortable position. In my view, the election of Trump forces us to take a hard look in the mirror and deal with a reality that I and many in my peer group seek to avoid.

“This is who America is–huge parts of her, at least. I suspect that black people, gay people, women, and religious minorities are far less surprised than college-educated, upper-middle-income white, straight dudes. They have been living this reality their whole lives. We have the luxury of pretending it is not so.”

I saw this on a FB posting. I won’t provide attribution as I don’t know the person and it was listed on a private network. It’s a great reminder.

I should have seen Trump’s election as more likely in retrospect. I grew up in a blue-collar, semi-rural suburb of Fort Worth, Texas. I was exposed to all of the racist, sexist, gun-loving, meat-eating, beer drinking, culture you might imagine. Our high school mascot was the “Rebels”, complete with the Johnny Reb mascot and confederate flags. The “locker room” talk was rampant. The not-so-subtle racism didn’t allow us to define our own relationship with race or even to talk about it with our few black friends. And honestly, I reflected that cultural image for far too long. It’s something that I’ve been trying to outgrow my entire adult life. I don’t repudiate my younger self or those people for they are in a different cultural echo chamber.  An echo chamber that we need to understand and pierce.  One that I had forgotten as I considered this election.

I believe the splitting of the American people has become more accentuated by these digital echo chambers. We have a factionalized press and too many self-reinforcing online resources that cause us to further polarize along these social and cultural lines. I found this NYTimes article to be very compelling:

“Americans are angry. That’s the sentiment that many believe is driving the 2016 election. They are angry because the rich are getting richer, the average guy is struggling and the government in Washington hasn’t done anything to stop the trend.

But it may not be that simple.

Data on the nation’s economic recovery, people’s reactions to current economic conditions and their overall sense of satisfaction with life do not suggest Americans are angry. In fact, historical measures indicate people are about as happy and satisfied with the economy and with their lives as they were in 1983, when Ronald Reagan told us it was “morning again in America.”

So why does it feel more like a 1 a.m. bar brawl?

The answer may have more to do with political parties than economics, or at least with the interaction of the two. Today’s voters have sorted themselves and polarized into partisan groups that look very different than they did in the late 1980s. And members of each side like the other side less than before. Americans aren’t annoyed only by the economy; they’re annoyed with one another.”

The rest of the article here:
American Anger: It’s Not the Economy. It’s the Other Party. http://nyti.ms/1pTJ3bp

Well, it turns out that when you poke the American people enough times and whip the partisans into a frenzy by highlighting their differences, then you end up with volatile outcomes. I’m afraid we’ve just seen this result with the election of Trump. With apologies to the office of the Presidency, Trump is a terrible outcome. But perhaps there can be a silver lining. Trump forces us to take that hard look in the mirror.

What do we want to be? How do we want to respond? With more vitriol? With more hate? With more denial?

We have challenging social and cultural differences that we’ve tried to conceal. We’ve created our own networks, our own echo chambers, and we’re ripping apart the social fabric that created America. We can be better than this. I demand it. My daughters demand it.

America is great. It need not be great again. America is great because it accepts its challenges and responds. America is great because we’re a land of immigrants. America is great because of the opportunities provided through education. America is great because we can look our neighbor in the eye. America is great because we lend a hand.

I resolve to continue forcing myself out of my tech-focused echo chamber and to embrace my local community. I resolve to give back to the community through commitment of time and resource. I resolve to understand the perspective of others and to find commonality rather than differences. I resolve to use Trump’s election as a wake up call for good. I hope you will too.

Another friend on Facebook noted that she was sending out love bombs today. This is my public love bomb. Keep your chin up and do your best to make a positive dent in the world today. I’m still proud of America, even as we look in this mirror.

Venture Optimism

I think I’ve got the fever. I woke up at 5AM on Saturday morning thinking obsessively about fundraising tips and tricks to share with my GPs. More on that later.

My spinning wheels are a reflection of my last few days in SF. Michael Kim and SVB put together a great event focused on small and emerging technology venture firms. It’s my opinion that the highly curated crowd includes some of the best investors in venture capital. The next generation that we will consider great. In addition, they are some of my favorite people in the world. Highly motivated, seeking to not only make great returns but to also use capitalism in a way that positively impacts our society. And not least they are a fun bunch of people where I’m lucky to have a number of friends. Thanks again to Michael and SVB for putting together the event and including us each year.

A few quick take-aways for me:

– I’m so happy to be focused on early stage technology. I used to invest in private markets broadly and I never would have been able to build this much context so quickly. A new level of detail surfaces when you study something closely. You begin to see patterns rather than dots.

– Venture capital is changing more than we realize. The diminished financing needs of early stage companies has meaningfully changed the risk profile of fund investments for LPs. More data on less capital should provide better risk adjusted returns.

– I couldn’t be more convinced that technology innovation will continue to disrupt traditional industries and that the rate of change is increasing. Seeing some of the early stage companies in the various portfolios is like reading good science fiction. My kids are growing up in a world far different than mine and I see technology being used for good, impactful change to the human condition.

– I believe there is a cultural and demographic transition occurring that will hasten the adoption of new technology. Digital natives are beginning to run the economy, opening enterprise and consumer to faster iteration cycles.

– Diversity of all types and backgrounds is becoming more important in tech and venture circles as the impact of technology spreads across traditional sectors. As one example, I feel confident that gender diversity has reached a tipping point that makes “girl power” a very important network in venture. Still lots of work to do but we’ve seen many more female founders in the portfolio lately and are seeing more female partners in these emerging firms.

In all the negativity around the election cycle and events around the world – it was good to be in a room full of optimistic thinkers and doers. I wanted to share my positive state of mind this morning before you put yourself back in the election funk.

Now I hear the pitter patter of small feet moving around the house and it’s time to engage with two little girls and try to subtly sway them into future coders and investors…

Why mum’s the word in the LP world….

A few of the possible reasons LPs do not shout from the roof-tops! – or even provide good feedback…

Benefit

Many LPs would ask you what is the benefit?  Why speak out?  I’m overwhelmed with interesting deal flow and the last thing I need to do is generate YMI (yet more inbound)?  Why do this at all?  I can’t even respond to the inflow as it is….

For me, writing something down forces me to a finer level of detailed thought.  I think it also helps to provide potential partners some transparency and to make yourself more approachable.   I also hope that I generate some content along the way that helps others in the ecosystem.  Finally, I hope to save myself some time and write down answers to questions I’ve been asked multiple times so I can point back to the blog posts.

Platform

Many LPs work at institutions that would prefer they never generate headlines.  I find that any organization with a general counsel has a pretty strong bias against blogging, social media, even public speaking.  LPs often have to jump through multiple approval hoops to get permission to speak or attend events.  Regular blogging becomes a step too far.  Many of these entities manage public monies and are subject to political “noise”.  Others may be private corporations that hope to stay that way.

My last platform, UTIMCO, was pretty open in this respect.  We were already so “public” that there was not too much sensitivity around my usage of social media, panel speaking, and I just needed to navigate ethics policies and political winds in my public comments.  Occasionally, a blog comment or panel statement would bubble up but overall wasn’t a problem.   At Foundry, the guys have encouraged me to raise my profile and provide content in matching their #givefirst mentality.  I do need to run any marketing or fund specific content by our CCO but we’ve really tried to make it less painful.  We all really just try to keep up with Brad’s prodigious content!

Agency Risk

LPs have little to gain and much to lose.  Certainly, it could benefit their individual profile but I think that many fear a potential conflict between their platform and their own brand.  This is really one of the reasons that some of the more naturally outspoken LPs don’t chime in too loudly.  I think many platforms discourage individuals from brand-building, as some of that brand can walk out the door.  A short-sighted view in my mind.

Natural Selection

Through natural selection, LPs generally aren’t your most outspoken group of individuals.  Many have chosen their platforms with an eye toward removing career risk, not taking on more risk.  You find many recovering accountants & lawyers (we have both on my team) and many people that have come to the role through a treasury or other service provider role.  You do find a few ex-bankers, ex-GPs and are seeing more of these in the organizations that pursue co-investments.  Generally they are the more outspoken of the bunch.

Bandwidth

LPs are way understaffed in most platforms.  You will find many organizations with a single person, or percentage of an FTE dedicated to the PE portfolio.  You often see organizations with large legacy portfolios and generally too much diversification, limiting the bandwidth available for specific asset classes or positions.  You’ll usually only see private equity teams that focus on private markets writ large, with very few focused on venture capital in even in the better-staffed entities.  Fund-of-funds have tended to be more prolific in their messaging/writing because they have motivation to build a brand (fundraising).   They are also better-staffed on a FTE/AUM basis and often focused on a specific part of the market.

Parting  Shots / Conclusions

We can do better.  I’m really proud of my friends Beezer and Douvos for taking up the #OpenLp torch with good support from a number of other LPs (too many to list separately).   I suggest we all try to provide an #asktheLP forum in much the same way my partners created an #asktheVC opportunity for others in the ecosystem.

We could get more support.  I spent a good amount of time with ILPA, Institutional Limited Partner Association, and I think they are a valuable resource (check out ILPA.org templates) but they could provide a lot more focus on venture capital rather than buyouts.  I also think that the NVCA really left venture FoFs out in the cold when they created the registration carve-out so it would be nice to see them spend more time on LPs too!

Finally, I hope entrepreneurs and GPs find it worthwhile as a number of us try to find time and voice from the LP side.