Treat Your LPAC as People, Not Just as Investors

You became a VC because you love… meetings? Pitch meetings. Fundraising meetings. Board meetings. Even a happy hour networking event is really just a meeting, albeit with wine! Given these ongoing obligations, it’s understandable that many investors approach their LPAC conversations with a ‘let’s get through this’ attitude. However, it does not need to be that way!

The first step towards a productive and impactful LPAC is getting the dynamic right (Work with your LPAC, not for your LPAC). The next step is how you can maximize their collective experience for your fund and firm.

Surveying the Screendoor portfolio managers, as well as our GP Advisors, a few themes emerged on how to make the best use of LPACs.

1. Prepare Them

LPACs are a tricky dance for some GPs. They likely include some of your largest investors so there’s always a sales and marketing tendency (“Things are great! You should definitely re-up in our next fund at twice your last commitment!”). However, hiding your challenges is the easiest way to lose the confidence of this group. You should aim to be thoughtful and reflective, rather than needlessly reactionary to the last piece of bad news in the portfolio. Zoom out before you dive in. What’s working as expected? What’s been more challenging? How much of this is macro and impacting your strategy vs simply a data point about your own execution?  Maintain a dialogue with your LPs over these questions; “no unnecessary surprises” is always a good motto. 

This can be especially necessary when your LPAC includes folks who might not be experienced venture investors, such as perhaps a family office new to the sector. They’ll bring valuable original thinking to the table but also could require some reminding of the uniqueness of this asset class - J curve, failure rate, power laws, and so forth. It is always better to do this *prior* to the meeting! 

2. Be Clear about Discussion Topics versus Decision Topics

Venture firms don’t require LPAC involvement to run their day to day operations. When an LP chooses to invest in a manager, they’re effectively outsourcing their investment judgment to the GP for the duration of the fund. Thus, it makes sense that the spectrum of what needs to be formally approved is pretty limited. Typically, an LPAC instead provides guardrails and guidance around performance and duration (concentration in a single company or fund length for example), incentives and shared interests (fee structure, conflicts of interest), or governance (changes to the managing partnership/key person). When you’re requesting approvals, make it simple, clear, and get what you need - 1:1 or with the group as a whole. For everything else, it’s a partnership with your LPs. You should be interested in their feedback while keeping them informed and engaged - but don’t seek consensus. Center this around the open-ended questions meant to assess their market perspectives (“What have you seen other managers do in this scenario?”) or understand how they, as LPs, would react to a certain path of action (“We’ve started to broaden our investment theses to include climate. How do LPs think about firms that evolve their coverage strategy within a fund cycle?”).

‍3. Operate like It’s People Talking to People 

“Personal relationship” was a phrase that came up multiple times in our conversations with GPs. Specifically, LPACs become much more productive when their members get to know one another and remove (or complement) previously assumed formality. Across our portfolio managers and GP Advisors, impactful and valuable LPACs are often having the meetings over a meal or following them up with a happy hour, taking time to do 1:1s in place of, or in addition to, a regularly scheduled Zoom, and grabbing a pre-conference walk when you find yourself at the same event. Even if you’re early in the relationship together, build the platform for long-term understanding of each other’s goals and perspectives. Sure the relationship is between institutions, but it’s also about the human connection with your LP lead. This helps with trust when things gets hard, as is natural over the course of a fund’s life, and provides a basis of understanding when POVs differ. 

When used to their fullest extent, LPACs aren’t just another box to be checked, but your braintrust outside of the partnership and a powerful tool in your fund manager toolkit!