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- #109 LP Takes on VC + Emerging Manager Deep Dive
#109 LP Takes on VC + Emerging Manager Deep Dive
Hi everyone! 👋 We’ve published >100 posts - 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.
There’s a lot of great content from notable VCs, LPs, and CFOs/finance pros on the internet. Here, we’re focused on pulling out the insights out that really matter, as well as finding the most current content that overlays historical lessons with current market dynamics, which are changing faster than ever.
Every Tuesday/Thursday, we bring you actionable tools, real-world experiences, and insider insights for #VC CFOs/Finance Pros and fund managers, #LP investors, and industry enthusiasts/people who want to learn :). As a reminder:
Tuesday: insights + interviews. Free for everybody.
Thursday: deeper dives on VC GPs, CFO/COO strategy, more insights from LPs/GPs, and our take on what it all means (from 15+ yrs. of experience). Exclusive to Paid subscribers (most of whom expense these insights).
“It’s always the hard part that creates value.” -Seth Godin
“Generally, it takes 7 or more years from vintage (the 1st time the VC fund calls capital) for seed/pre-seed VCs to really return any meaningful cash to LPs. This is part of why the asset class rewards "patient capital" & impatience is a mismatch for this asset class. TLDR: VC should NOT ever be thought of as a "get rich quick" strategy. VC, at its best, should be a "get rich slowly but together (with founders, execs, etc) & build big" strategy and, for sure, that requires patience for LPs and GPs alike. 🧵here: https://lnkd.in/eUBhpGk7”
In a recent post, John Felix (Allocate Head of Emerging Managers) wrote that “2023 has been a challenging fundraising environment for funds of all types. However, the emerging manager (typically defined as firms on Fund 1, 2, or 3) segment of the broader venture capital market has felt the most pain. In times of market uncertainty, LP capital tends to flow to proven fund managers, and commitments for new managers often dry up. According to Pitchbook/NVCA, emerging managers have raised just $11.4 billion across 170 funds through Q3 2023, representing a 63% decline in total capital raised and a 66% decline in the number of funds raised compared to 2022.”
Why pay attention to emerging managers? John writes that “some of the best-returning venture funds of all time were emerging and first-time venture funds. For example (based on publicly available information), Lowercase Fund I (Uber and Twitter) returned 250x+, K9 Ventures Fund I (Twilio and Lyft) returned 50x+, and Initialized Capital Fund I returned 50x+ (Coinbase, Instacart).” For more reasons and insights, we suggest you check out the full post here.
In a recent post discussing venture capital DPI (distributions), David Zhou wrote that he’s “been hearing a lot of investors talk about timing the market. When’s a good time to sell? What price makes sense on the secondary market? Another obvious truth is that as investors, our job is to make our LPs money. Ideally, more money than we were given. For other asset classes, it’s measured in percentages. For venture, it’s multiples. And because of that, it’s our job to think not only about the upside, but also the downside protection. Hence, why early DPI matters in some of your best outliers. It always matters. But from what I’m seeing and hearing, it matters more in a bear market, like today. Than the bull we were in yesterday. Why?
Liquidity is a differentiator.
Because of the point 1, giving LPs some liquidity back makes it easier to get to conviction as you raise your next fund.
Point 2 holds the most weight if you’re an emerging manager on Funds I through III, or have sub $100M AUM. Although Funds I and II, you have little to go off of. As such, sticking to your strategy may be more important to some LPs. In other words, consistency.