Private Market Insights

💰 Building an LP Base & Network for the Long-Term

Per Barry Eggers (Lightspeed): LPs provide the essential capital that venture funds need to operate, and having a well-structured LP base helps mitigate risks associated with LP churn, especially during market downturns. As a result, securing and maintaining a diversified base of limited partners is critical to the firm's long-term success. For GPs on their 1st or 2nd fund, there are several strategies one can employ to solidify your LP base and increase the likelihood of closing future funds. Limiting the size of any single LP’s contribution, prioritizing LPs with their own capital, and targeting LPs committed to the venture capital asset class is a great place to start as you begin to grow your limited partner network.

💦 Deliciously Juicy Takeaways

🕰️ Past

• Historical Dependence on Few Large LPs: Early venture funds often relied heavily on a few large LPs, which could lead to significant risk if those LPs withdrew their support.

• Limited Diversification: In the past, funds might not have effectively diversified their LP base, increasing their vulnerability to market cycles.

• Long-Term Relationships with Traditional LPs: Historically, funds focused on building long-term relationships with established LP categories like university endowments and public pensions.

🔎 Present

• Emphasis on Diversification: Funds should be more strategic about LP composition, seeking LPs with their own capital and a long-term commitment to the venture capital asset class.

• Adapt to Market Changes: Modern funds are adapting to shifts in the LP landscape, such as the evolving role of fund of funds.

• Leveraging Sovereign Wealth Funds: As sovereign wealth funds continue to grow and stabilize, they represent a significant opportunity for future funding.

🔮 Future

• Innovative LP Segmentation: Funds should develop more nuanced segmentation strategies to match their fund strategy/thesis with LP characteristics.

• Enhanced LP Engagement: Continuous engagement with potential new LPs, even outside of fundraising cycles, can strengthen your LP base and provide greater flexibility in fund management.

Private Market News & Insights

🔗 Links to Share & Save

• Signature Block: Perspectives from fund managers on the "valuation question"

• Venture Unlocked Podcast: “What are LPs Thinking About in Venture” From the Perspective of 3 LPs

• Swimming with Allocators Podcast: What Shappire Partners Wishes More VCs Knew

Curated Deal Flow

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