The unvarnished truth about venture capital — LP edition (1/6).

🚀 Welcome to the secretive realm of Venture Capital (VC), a place where dreams soar as high as the stakes, and the reality often lurks behind polished pitches.

We’re about to peel back the curtain on what it truly means to be a Limited Partner (LP) in the VC sphere, touching on everything from the hurdles and pitfalls to the lesser-discussed realities. Brace yourself for an honest discussion, sprinkled with insightful data, and perhaps, a chuckle or two as we delve into the genuine narrative of venture capital from the perspective of an LP.

🔍 LP Life Uncovered: The life of an LP is filled with high hopes and big commitments. Here’s a peek behind the curtain at what LPs deal with, from the tricky dynamics of funds to the long waits for returns, shining a light on some lesser-known aspects of VC.

Numbers:

1. Money-lock up: Having your money locked up for 7–10 years is not ideal, and a lot of smaller LPs are starting to realize this. This is more true during markets like the one we’re currently in. 💸
2. Big vs. small: It is way easier to 3x your money at a $10m fund than it is at a $100m fund. It is also way easier to 3x your money at a $100m fund it is at a $1b fund. 📈
3. Celebrity influence: There is no data on whether having celebrities / athletes as LPs has any meaningful impact on returns, but it makes your fund sound 10x cooler. ⭐

Storytelling & Influence:

1. Hype investing: Over the past five years, many funds have invested based off of hype alone. No diligence, no reference calls, no thought out thesis — only an expectation that somebody else will bid higher in 12–18 months. That is changing, but it still exists. 🚀
2. Fundraising: You can raise a fund on influence, but it is very hard to scale one on clout alone. 🤝
3. Deadlines: Closing deadlines aren’t real for 99% of opportunities. This applies more in fund investing than direct investing, but it applies in both worlds; it’s not very difficult to adjust legal docs to make more room for investors. 📅
4. Pitching: All fund managers pitch J-curve returns to LP’s. The earlier you invest, the longer that curve becomes. The shape of this curve matters a lot to different types of investors based on their time horizon. 📊

Type of investor:

1. Patterns: Trying to find common patterns among family offices and LPs is a waste of time. Each one is unique, with its own story and approach to investing. 🧩
2. Venture Exposure: If you’re an institutional investor and want venture exposure, invest into venture fund of funds first. You’ll get more coverage into the right types of funds instead of having to see everything yourself. 🔍

As we conclude this introductory chapter on venture capital from the LP’s perspective, it’s evident that the role of an LP transcends mere financial contribution. It’s a multifaceted voyage fraught with its own set of challenges, from enduring the wait for returns to deciphering the complexities of fund investments. Yet, this is merely the onset. Stay tuned for further revelations and candid discussions in the subsequent parts of our series, with upcoming editions focusing on:

• Fund edition (2/6). 📚
• People edition (3/6). 👥
• Junior role edition (4/6). 🌱
• Partner edition (5/6). 👔
• Startup edition (6/6). 🚀

Disclaimer: The opinions expressed in this article belong solely to the author and may not represent the official stance of any entity associated with the author. This content is intended for informational purposes only and should not be construed as investment advice or a solicitation for the purchase or sale of any financial instrument. Readers are encouraged to conduct their own research and seek professional advice before engaging in any investment activities.