How to be a top quartile LP to fund managers?
We always talk about what a top-quartile GP looks like for an LP, but what about the other way around?
In VC, being in the top quartile (at minimum) is all that matters. Top quartile funds, companies, and investors are where all the alpha is generated. In new VC funds, where we invest, we focus entirely on answering the question: how much can this GP out perform? Because most GPs can’t massively outperform, if we find one that can, we will want to deploy with that partner for a decade.
But this strategy requires something of us as the LP. It requires us to be a good partner. As the GP grows, the access to capital gets easier, its not about the money, its about the relationship. We spoke to a sample of the managers we backed and ones we passed on and asked them this question “when you’re building a relationship with an LP, what makes them stand out.” The results are surprisingly simple:
Respond to emails.
Set timelines for your investment process and actually run the process.
Give feedback.
When your GPs ask you for something, do it, or explain why you won’t do it.
After you commit, pay your bills on time.
And that is really it. It seems pretty simple, which should show you how much room for improvement there is in the new VC-fund world.