How To Find LPs: Utilizing Connectors

Types of Connectors

Founders

Successful and exited startup Founders can be a good resource for new fund managers, as such Founders’ opinions are incredibly valuable to LPs. Speaking with VC Lab, Court Lorenzini, LP in over 15 VC firms and Co-Founder of DocuSign, shares that he often speaks with Founders of warehoused deals to aid his decision-making. During his deliberation process to finance a new fund manager, much like many LPs, he too looks to ascertain why Founders chose to work with you over other VCs. Consequently, getting references and introductions from Founders who have had significant markups can go a long way to impressing any potential LPs. Many LPs in Venture Capital firms are also direct investors in startups.

It is highly advantageous to have a list of such Founders to call upon since most exited Founders are wealthy and more comfortable with the asset class than most; therefore, they may be willing to invest in your fund themselves. More often than not, successful Founders may also have great relationships and a direct line of communication with HNWIs and Family Offices and can potentially connect you to others who might be interested in becoming an LP in your fund.

If you do not have a vast network, providing value to Founders is a great long-term strategy to build these relationships. Note that this can take quite some time, though it is advisable to start developing your network as soon as possible. You can add value to a startup in equal parts, both as an investor and an advisor to the company. Such acts will enable you to build a deep-rooted network within VC and can expedite fundraising in the future.

Other VCs

Other General Partners and Venture Capitalists can also prove to be a great source and means of meeting new Limited Partners. Once again, it would be best if you looked to leverage your network and get introduced to Limited Partners. For example, if you attend VC Lab, you can discuss the matter with your cohort peers and work towards a mutually beneficial outcome. One way you can do this is to be open with your LPs and give introductions to other General Partners. When making introductions and asking for them, make sure that all parties have opted into the introduction and you follow the expected etiquette. It’s often best to practice making this as less transactional as possible and optimizing to provide value to all parties involved.

Venture Partners

A Venture Partner is a well-networked strategic partner that typically does not reside within the Venture Capital firm. As such, they are a valuable resource for NextGen VCs in multiple functions, one being fundraising. These terms are outlined in the Venture Partner Agreement and can be modified to suit both parties. You can adjust levels of commitment from the Venture Partner and agree upon fair compensation and commission for the results they produce via carry in the fund.

Therefore, as a new manager of a Venture Capital firm, it can be highly beneficial to make tactical alliances with Venture Partners. LPs too can look positively to such individuals who can share their expertise with the firm and both source deals as well as help you fundraise. Venture Partners are increasingly becoming the new source of labor in Venture Capital and are proving to be extremely valuable to NextGen VCs and are something you should consider utilizing.

Approach

When looking for potential LPs, you can refer to our ‘Conducting Cold Outreach’ guide to help you find them on the internet. Specifically, you can utilize LinkedIn and search for relevant 2nd-degree connections in your desired region. When searching for limited partners, you should adopt a sound CRM system to track your process and leads. This CRM system can be a spreadsheet or specifically tailored software. Note your relevant existing connections to the potential LPs you want to engage with during the process. For example, if an ex-colleague is a mutual connection, you should make a note of that in your CRM to the particular LP, as you will reach out to your references in the near future for an introduction.

Before reaching out to your connections for introductions, you should research why each LP is relevant to your fund. Look for pertinent qualifiers that make them suitable. For example, if they have previously invested in fund managers with a similar focus/sector or in the pre-seed to seed stage. This research will make your ask more compelling as you can demonstrate your knowledge in your messaging to your connection. By such a demonstration, you give connectors confidence that you too may be a person of interest to the investor and worthy of connecting.

Messaging

Nathan Beckord, CEO, and Founder of Foundersuite recommends that when messaging your connections, you should be very deliberate in your messaging, both in the question you ask and the knowledge you demonstrate. The typical “Is there anyone I should speak with?” question does not elicit a response from connectors. If you do not know what you are looking for, neither will others. Instead, Nathan recommends you utilize your research on LPs and demonstrate your knowledge of them in your outreach to connectors. The goal here is to invoke a positive response by having a clear ‘ask’ and establishing the investor’s pertinence.

For example, you may ask for an introduction to a list of 4 potential investors from one particular connector. When doing so it will help if you explain why each specific investor is relevant to your fund in your messaging to the connector.