What do LPs want?

2 responses

  1. Mark macLeod says:

    Great post! Lots of questions raised. I dug into this topic myself a bit last week (http://startupcfo.ca/2008/05/canadian-vc-performance-in-2007.html)

    As someone who is dependent on local VCs for funding, I have to say I’m very concerned about the returns. Both short and long term IRRs are not enough to keep $ in this asset class.

  2. Andy says:

    I enjoyed your commentary. To help advance your cause, I would like to share some additional institutional perspective:

    I think that VC’s might examine their own business model, and offer up some further innovation. The limited partnership fund is not the only way to make investments, and even within this structure, there is room for some changes to approach, e.g more concentrated portfolios, smaller fund sizes, different economics or timing of such economics are some things I have discussed with the community, and in a couple of instances my institution have supported such unique arrangements (in Canada, and in the States/Europe, both in venture capital and other private equity variants). Or, as another example, the daisy chain of funding rounds, and wide variety of partners in a typical VC deal are peculiar to VC investing – but maybe this club context conspires against good outcomes for all kinds of investment selection and behavioural reasons?

    Maybe rethinking all this just ends up reinventing the wheel, but I would like to see some form of introspection by VC’s which suggests that risks going forward are calculated and thought through – that is all us “capital allocators” can really ask for.

    In any event, you are on a difficult track to take guesses on how institutions work, or should work, and how they chose to allocate their capital. Better to simply make the realistic case for what you are doing, or plan to do, rather than trying to fulfill some notion of what you think institutions might want. Isn’t this the way you hope the entrepreneurs you back think of you and how to deal with you?

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