Maintaining LP Relationships While Deploying Capital

Congratulations! You’ve gathered a group of limited partners (LPs) around the table who are excited about the firm you’re building and are committed to your vision. At this juncture, you can shift back to focusing primarily on your investments and portfolio companies — but it may be in your best interest to continue engaging with your LPs strategically throughout the fund cycle.

Below are some best practices for LP engagement during a fund cycle that may help to keep your LPs informed while allowing you to maintain focus on the companies you serve. “Lean on your back-office team and fully leverage your technology stack to drive the data gathering for your quarterly and yearly updates,” recommends Hillary Tyree, a vice president on SVB’s Emerging Manager Practice team. “This approach can meaningfully streamline the process and allow you to focus on more nuanced details like strategy and portfolio highlights.”

Yearly

Hold an annual meeting.
Most LPs expect a yearly check-in — whether in person or virtual — during which they can focus on your fund for a few hours and hear a holistic update. Union Square Ventures’ Fred Wilson has a simple annual meeting playbook. “We do one annual meeting in the fall after Q3 results are out. These used to be in-person meetings in our office featuring several (3-5) presentations from a representative mix of portfolio CEOs,” he writes. “We like to have a wide variety of companies present (by stage, performance, etc.) and absolutely do not do a ‘greatest hits’ experience at these meetings. We did our annual meeting over Zoom last year and may continue to do that going forward, as it makes it much easier for the portfolio CEOs to present and easier for our LPs to attend.”

Sample annual meeting agenda:

• Day before the meeting: Informal dinner with all GPs and LPs
• Day of the meeting:
  • Think carefully about which team members you want to present your materials.
  • 30 minutes: High-level financial overview, with key performance metrics including distributed to paid in capital (DPI), multiple on invested capital (MOIC), total value to paid in capital (TVPI) and internal rate of return (IRR)
  • 1 hour: Market overview, fund strategy evolution, and team updates
  • 1 hour: Portfolio review, including three to five key companies. Discuss the most successful investment, and lessons learned from less successful investments
  • 1 hour: Company presentations from 1-3 founders who present to LPs directly

Quarterly

Hold a quarterly call.
Similar to a public company earnings call, a quarterly update can give LPs a pulse check on the portfolio, the market from your vantage point and any areas where you need additional support or focus from them. Lux Capital’s Josh Wolfe has shared this great example of the quarterly update letter that he writes for his LPs.

Sample quarterly call agenda:

• Typical calls can be 45 to 60 minutes in total, especially for managers with only one or two funds.
• 15 minutes: High-level financial overview, with key performance metrics including distributed to paid in capital (DPI), multiple on invested capital (MOIC), total value to paid in capital (TVPI) and internal rate of return (IRR)
• 15 minutes: Market deep dive and/or team updates
• 15 minutes: Company presentation and/or portfolio review

Provide quarterly schedule of investments.
Many LPs require quarterly financial statements that include a holistic overview of each investment with updated net asset values (NAVs) for each portfolio company.

Monthly or as needed

Provide updated company write-ups.
At least once or twice a year, consider providing your limited partners with a more detailed look at the status and performance of each company in the portfolio. (Some firms do so quarterly; others incorporate this information into their annual LP meeting packets.) Some fund managers also elect to write detailed deal memos for their LPs when they call capital which is both efficient and can improve regular information flow.

Consult with your LPAC.
If your firm has institutional investors, you may consider assembling an advisory board of your largest/most important investors, also known as a Limited Partner Advisory Committee (LPAC). This group can serve a similar purpose as a company advisory board and can offer helpful oversight. In addition, an LPAC is often helpful in steering other LPs, when needed.

Meet informally.
Consider nurturing your LP relationships. “If you're an LP, the best time to break bread with GPs is off annual meeting cycles (typically post-returns),” says Erik Sebusch, partner and global venture capital strategy leader at Mercer Consulting. “The best GPs bring tidbits of data or intel to swap, like thematic trends they are seeing, for example.”

Tailor communications to your LPs.
“Be aware of what your LP wants out of an investment and try to tailor your relationship accordingly,” said Jeff Weinstein, a GP at FJ Labs, in an interview with Kauffman Fellows. “Each LP may prefer a particular cadence and style of communication. With some investors, we have recurring deal-flow-sharing calls, while others only want to receive quarterly reports that outline financial performance.”