Having allocated to venture capital funds at one of the world's largest sovereign wealth funds, I've seen firsthand how VCs often view institutional LPs as a bit of a black box. I've heard the exasperated sighs and seen the puzzled looks when faced with our decisions. "Why is this so hard? $1M is a drop in the bucket for you guys!"
Well, my friends, the truth is, things are a lot more complicated on the other side of the table. Government regulations, misaligned incentives, internal politics and so on—it's not as simple as it seems from your side. Of course, it varies from firm to firm, and some are better than others, but based on my conversations, the largest ones share similar pain points.
Since my VC friends have asked me to spill the tea on what really goes on behind the scenes, I've decided to start this blog to give you a peek inside the world of institutional LPs.
In this first post, I'm sharing my personal tips for building relationships with LPs, based on my own experiences. Hopefully, it's helpful for VCs, especially IR teams, who I think are the unsung heroes of the VC industry.
Reply first, respond later. Lawyers do this, some of my favorite VC IRs do this too, and I love it! A short, immediate acknowledgment goes a long way. For LPs, it's much better for their CIO to hear that 'Yes, they are working on it' instead of 'I haven't heard from them yet' or 'I sent an email, still waiting.'
Identify your champion and empower them. Every deal needs an internal advocate – someone fighting for you behind the scenes. They're not the ones bogging you down with endless due diligence requests; that's just the process, not your champion. Help them help you by providing the information and support they need. Remember, they're also betting their reputation and career on your success.
Never bypass anyone at the LP org. While you need a champion to close a deal, it's equally crucial to avoid strong objections. A single negative voice can kill a deal. Bypassing a junior LP (e.g. emailing their boss directly) might look efficient for now but extremely shortsighted. It can lead to resentment, sabotage, or even negative word-of-mouth among their peers. Moreover, in most cases, the boss you just emailed would not be happy about it either. Remember, LPs tend to stay within the industry, and some might even ascend to CIO positions, carrying any grudges with them. If you hit a dead end, move on and try again in the next cycle —play a long game and don't burn bridges. The LP world is smaller than you think, and they TALK.
Know what you're selling. I think there are two types of IRs: product specialists and relationship managers. Many IRs are one or the other, but I don't think you should pick just one. The baseline is being a great relationship manager and if you know what is going on with your deal team and the market, you might not even need your deal team for the LP meetings - it’s your show from there! Go to every IC meeting and actively listen. Share what you learn with your LPs. They will obviously love you, and your deal partners will too.
Understand each LP's unique mandate. Some prioritize co-investments, others only care about fund participation. Some value information sharing or specific sector expertise, other might not. Tailor your pitch to their individual goals to create a win-win scenario: they fulfill their mandate; you get the money.
Invest in junior LPs early on. This is related to #3 – remember, LPs tend to stay within the industry. Being an LP can be quite addictive – almost like golden handcuffs. They get decent pay to talk to the world’s brightest minds at fancy hotels with nice meals; even better, everyone tries to be their best friend! It is also scary to leave an LP job, as GPs might ignore them from then on, and there is the sad realization that their GP friends loved their position, not them as a person. Now, given that they are likely to stay, why not befriend them when they are junior? It is like investing in pre-seed or seed-stage companies. Some GPs even host "future CIO gatherings," which I think is an amazing idea.
Send deal snapshot memos. After closing a startup deal, send a concise memo summarizing the key points. Nobody has time to read a lengthy quarterly memo filled with investment documents, but a well-crafted, chewable, short memo after every investment is valuable. You have the fresh memory and materials right in front of you anyway.
Show genuine empathy. A personal touch goes a long way. If a tragic event occurs in an LP's hometown or community, sending a brief note of condolence or support can leave a long-lasting positive impression. It demonstrates that you care about them as individuals, not just as investors.
Focus on meaningful connections at industry events. Resist the urge to collect as many business cards as possible. Instead, prioritize building genuine relationships with a select few LPs - they will introduce you to their friends. Remember, quality trumps quantity when it comes to building lasting partnerships.
Keep trying. If they ghost you, it’s likely a no. But a lot of times, they are on the fence or just too busy. Send a follow-up with new information, try to set up a 15-minute call, or invite them for coffee.
What are your top tips for building strong LP relationships? Share your thoughts in the comments below!