#100 LP Communication Best Practices + Fundraising References

Hi everyone! đź‘‹ We’ve published our 100th post - appreciate the support/ sharing w/ friends! Welcome to our new members of @TheFundCFO crew! We recently launched a paid tier and released our VC Fund Playbook + Models @ Streamlined.Fund! Re-linking top posts: #96 The Case for 30+ Co.'s Per VC Fund, #88 Latest Takes on the State of VC, #86 VC Fund Stacks, and Full CFO Archive.

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“Compare yourself to who you were yesterday, not to who someone else is today.” -Dr. Jordan Peterson

LP Communication Best Practices

If you’re a VC GP or CFO/Finance Pro, you’re likely thinking about your Q3 report and financials. At the end of each quarter, “The Playbook” requires VC funds to review and update their financial performance to investors. That means working with fund administrators / accountants to review portfolios and update company valuations based on your Valuation Policy.

While the numbers matter, there is always a story behind the numbers! The best VC GPs and CFO/Finance Pros combine clear, accurate financial reports with a LP update letter that tells the story of what is going on in the portfolio.

So what makes a great LP update? We went deep on this earlier this year in #56 LP Email Updates, Insights: Getting Hit By The AI Lucky Truck @ Chapter One. In that post, we noted that the best email updates are concise, data-driven, and have a clear why (why is this hitting my inbox?). Where else can you go for insightful thoughts on LP updates? Check out the following references:

One more note here: LP investors always appreciate unique insights. What different story are you telling in your LP update relative to the others out there?!

LP Communication Insights: Meghan Reynolds at Altimeter

Meghan Reynolds is a Partner, Capital Formation, at Altimeter Capital. She has expertise in VC/PE capital formation and was previously a partner at TPG. She recently shared her Five LP Communication Principles which we found a helpful reminder to anyone working on LP communication / updates:

  1. No Surprises: If at all possible, don’t let LPs read something meaningful in the press or hear from another LP, before they hear it from you. If you can’t get ahead of it, be close behind with clarifying detail. A heads up to LPs on good/bad news goes a long way

  2. Communication Hierarchy: The most important constituents to a GP are 1) employees 2) LPs 3) portfolio company CEO/founders 4) potential LPs/employees/founders. For important firm updates/events, keep each group and hierarchy in mind - the order really matters (see #1 above)

  3. Don’t Assume LPs Read the Report: GPs often think they have communication basis covered by putting important updates in an annual/quarterly report. If it’s meaningful (good or bad) don’t bury it in a pdf - send a one off update, or point it out in a cover note

  4. Bad News? Remember “PIE”: 1. What’s the PROBLEM & what’s being done about it 2. What’s the IMPACT eg., If company goes to 0.0 - what’s the potential impact to overall fund performance 3. What’s the LPs’ EXPOSURE within the fund

  5. With All Things, Empathy: Chances are, your LP is not a sole principal. Arm your LPs so that they look smart to their boss or board. As a baseline arm them so they have a general sense of the potential breakouts and problem children in the fund.

LP Communication Insights: Eric Bahn at Hustle Fund

Eric Bahn is a GP at Hustle Fund. Hustle Fund is not actively fundraising as they raised a $46M Fund III last Fall. Eric shared the following insights on his approach to LP communication recently via this LinkedIn post: ”I'm averaging 2-3 new LP pitches per week, which is over 100 pitches with prospective LPs per year. Every conversation is carefully documented, with action items, in our CRM. A mistake that a lot of emerging managers make is to stop pitching after they raised their given fund. Don't do that.Relationships take a long time to warm in our industry, and some LPs will want to watch 1-3 fund cycles prior to feeling comfortable committing to your fund. Which means that you are raising for funds that may consummate possibly 3-10 years out from today.Charles Hudson of Precursor Ventures gave our team some excellent advice early in Hustle Fund's journey, which was to never run out of leads. That means that if you're an early fund manager, you need to be pitching all the time while raising, and all the time when you're not raising.Also FYI: when we are in an active fundraise, I increase my LP pitches from 2-3 LP calls per week to something closer to 10-15 per week. It's a grind, but it's a joy too, as I 100% believe in what we're doing to serve founders, LPs, and the tech ecosystem.”

VC Fundraising References & Back to the Basics

Building on the LP communication insights above, it’s important to apply it to the nuances of today’s market. We’ve seen a lot of different VC fundraising markets in the last 15 years! Previously, we shared posts with lessons learned from VCs such as Fred Wilson @ Union Square Ventures, Jeff Morris Jr. @ Chapter One, Elizabeth Yin @ The Hustle Fund, Winter Mead @ Oper8r, and Mark Suster @ Upfront Ventures.

All have had different fundraise journeys and share unique insights. The background posts are linked here:

Repost: VC Fundraising in the Bear Market (August 2023)

As data from Pitchbook (chart below) and other industry sources show, VC fundraising is down meaningfully in 2023 ($77.7b across 592 funds YTD vs. $332b across 3.3k funds in 2021).

Recently, we listened to Mark Suster (Upfront Ventures) and Samir Kaji (Venture Unlocked) discuss “The Art of Raising from LPs in an Economic Downturn) and appreciated a number of key insights and takeaways, which you can read in more detail here: #94 VC Fundraising Basics & Bear Market Strategies.

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