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(Some) LPs Speak Up

Article by Connie Loizos for TechCrunch, July 7, 2016

Venture capital used to be such an insular, under-the-radar industry that entrepreneur-investor Marc Andreessen has said that he’d never heard the term before arriving in the Bay Area in 1994. He’s hardly alone. It wasn’t until the mid- to late-1990s, during the dot.com boom, that the world became acquainted with what venture capitalists do. And it wasn’t until after venture capitalists Fred Wilson and Brad Feld began publishing insights about their work roughly 12 years ago that the art of VC blogging began to border on competitive sport.

The exercise has paid off for many investors. Among those to actively raise their profiles (and presumably, increase their deal flow) through blogging are Jason Lemkin, whose new venture fund we covered here; Hunter Walk of Homebrew; and Mark Suster of Upfront Ventures. (CB Insights has a longer rundown of VC bloggers here.)

Institutional investors, the money behind the VCs’ money, have not followed suit, though there’s reason to think the industry is thinking more about outreach at long last. Indeed, though these limited partners (LPs) have largely remained mum, not sharing much about their selection process, not blogging, and not talking publicly with reporters, a few signals suggest a change may be afoot, including recent feedback from one investor from a mid-size university endowment, who recently shared on background that he’s been asked to raise his profile.

The reason, simply: competition. As you may have noticed, a smaller group of so-called top-tier venture funds now manages more of the money flowing into venture capital than ever before. Still, these firms can only responsibly manage so much, which puts pressure on LPs who want stakes in those venture funds.

Perhaps because of uncertainty about the market, LPs are also less interested in brand-new funds right now than in the second or third funds of micro-venture firms that are starting to prove themselves. Forerunner Ventures, which has tripled the amount of money it is managing in the last four years, is just the latest example. These managers, too, can only make room for so many LPs.

Then there’s foreign money. More specifically, there’s more of it than ever to compete with. Take Peakview,  which is the investment advisory arm of Shengjing Group and the largest global fund of funds in China. Its U.S.-based managing partner told this reporter in March that Peakview has millions of dollars to invest in U.S. venture firms. To curry favor with them, it’s promising to help their portfolio companies bridge networking gaps between the U.S. and China.

How LPs are working to gain an edge differs.

While many debate their strategies internally, other institutions are proceeding, slowly, into public view. This spring, for example, the 33-year-old global private equity fund of funds Horsley Bridge Partners took to Twitter to share part of its approach to venture investing and why it favors funding early-stage firms. (We should note that these tweets are among 130 total that the firm has ever published, but, baby steps.)

Other LPs are taking a more active approach, comparatively, including Chris Douvos, a managing director at the fund of funds group Venture Investment Associates who appeared on stage at our most recent Disrupt event and who has famously written a widely read blog for years.

You can see why it’s a popular read. In one recent entry, he offers this unvarnished fundraising tip: “‘You’ll be sorry you missed this’ has never once worked as a tactic to get me — or most LPs for that matter — interested in a fund. Neither has telling me, ‘If you miss this fund, you’ll never be able to get into future funds.’ Such bluster usually earns [a] one-way ticket to my ‘managers’ folder, a place that is alphabetically and existentially distinct from my ‘interesting managers’ folder.”

Elizabeth “Beezer” Clarkson of Sapphire Ventures — who oversees a $400 million fund whose capital comes from software giant SAP and that has backed roughly a dozen early-stage firms — is another LP whose star is rising because of her public outreach (which has included writing stories for TechCrunch).

Over coffee recently, Clarkson talked at length about the “connective tissue” that now exists between LPs, VCs and startups, as well as the array of activities that Sapphire involves itself in, including helping organize regular events and making introductions to its VCs’ portfolio companies.

Asked why she bothers — Sapphire already has investments in an array of strong firms, including August Capital, Data Collective and the Berlin-based firm Point Nine Capital — she seemed surprised by the question. “I don’t pretend that what we’re doing is brain surgery,” she said, laughing. “But we’re passionate about the value that an LP can have, and if you have the ability to do it, why not?”

Besides, she added, “We really think there’s a lot more that the world wants to know [about what LPs do].”