Want to Raise a Venture Fund? 6 Things LPs Look For

Q: As an early stage investor turned first-time VC, what should I do, dance, boast, celebrate, blog about it, call future potential LPs? – when a portfolio company has a successful IPO?

Potential LPs are well aware that many folks have very small stakes in big outcomes, so having a “hit” on your hands isn’t enough for them. Not alone.

What they want to know is:

  • Did you own enough? Anything < 4%-5% ownership, you don’t get full credit. Even from a small fund.
  • Did you lead the round? LPs are much more impressed if you led. Because it shows you can likely scale the amount of capital you deploy.
  • Did you source it? Usually clear in a smaller fund, but not obvious. If a departed partner or investor sourced it, there may be skepticism no matter what the returns.
  • What are the total returns of the fund? It has to be at least 3x. If you can’t do 3x overall even with one big winner, you didn’t really do venture investing right.
  • Is it repeatable? Do you have another unicorn in your portfolio? Fair or not, LPs see a lot of luck in venture, and worry about one-hit wonders. You need at least one per fund to have the potential institutional LPs are looking for. Ideally, at least two.
  • And ideally, will the founders of your winner(s) recommend you highly? It’s rarer than you think. Rarer than most VCs think.

In the end, there are 1000 unicorns now, with, say, 10 investors on average, that’s maybe 10,000 folks who can brag about each unicorn.

You need to go further to impress new LPs.

Published on March 2, 2021

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