Raise Your Hand for LP Gruntwork
The investor wheels will surely turn without you, but don’t let them if you can
A few months ago, I was having lunch with a “small p partner” at a peer VC shop, and he genuinely bragged to me that during their firm’s recent fundraising process he was only required to talk to one LP throughout it all. Yep, he had to deal with only one, and then get back to his regular job.
What?!? I was shocked about his willful ignorance of and abdication of involvement in an integral component of the venture capital business, and then boasting about it! How are you going to elevate yourself to a real seat if you don’t know about or have exposure to that aspect of VC?
Limited partners interactions and investor fundraising is one of the most opaque parts of the VC business for junior investors, in part because it’s (sometimes intentionally) insulated from their daily roles. However, it’s an important component of the overall business, and the sooner in a career that you can gain exposure, the benefits accumulate.
A main power source in any organization resides in where the money comes from. But in a venture capital firm, that place is atypically separated from the customer, the entrepreneur. I personally believe that we’re here to serve Founders. They as the customer do eventually actually pay the firm… it’s just half a decade or more later once their business has exited. But in the meantime, the inbound dollars in venture capital organizations come from limited partner investors.
Differently sized & shaped firms mean something different for non-partner investors in this area. Much smaller and newer VC firms which are fighting for their survival in raising the next fund will be all hands on deck anyway, and you’re likely to get pulled into fundraising activities regardless. Ranging all the way to a situation where industrial complex firms might even have a separate and largely insulated investor relations group which is even distinct from the lead General Partners’ activities themselves. But in between those two extremes are a range of flavors where there are periodic sprints of partnership attention and resources spent on LP episodes, like an annual meeting or fundraising. These investor events are your opportunity to (tactfully!) raise your hand to get involved in some fashion.
Of course, you’re not going to be put in charge of running the annual meeting from the outset, so the best way to crack the door open to this function in the organization is to start at the bottom and raise your hand to volunteer for some of the gruntwork. Be willing and offer to make the slide edits, run data analysis, or gather portfolio information. Like with any job, as you begin to prove yourself, you’ll be given more responsibility, and then maybe even become the “go to” person for these tasks.
Why take on this additional responsibility when your primary function is to be sourcing and assisting in making exceptional investments? There are three reasons to accept more onto your plate here: learnings, contacts, and assisting colleagues. Involving yourself in LP communications and engagements provides an understanding of how this aspect of the business works. If you’re going to be a senior partner someday, you’re going to need to learn this function of the business somewhere along the way; better sooner rather than later. Second, of course, it’s unlikely that as a junior analyst you’re going to be put in a one-on-one meeting with the CIO of a huge pension fund anytime soon. But just like your VC peers will soon be partners and General Partners at important co-investor firms, your junior LP peers today will be Head of Private Investments at endowments and family offices before too long. Even nominal relationships initiated and maintained over time are worth gold later in your career. Lastly, adding value to your current firm in all the ways that you can is important. If the stated goal is to not lose your seat, selflessly assisting your colleagues in an optically salient way helps extend your runway at your current firm to allow for your personal portfolio to expand further and bloom.
It was more years into my venture career than I’d like to admit before I began to appreciate the importance and relevance of the LP-facing side of the VC business. Nobody ever told me, but that isn’t an excuse, as I should have figured out to follow the dollars. Getting involved sooner lays the foundation for steeper upward trajectory later. A decade or two down the line, you don’t want to rely on your partners having raised the latest fund for you, rather the other way around.