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(Some) LPs speak up

TechCrunch TechCrunch 6/07/2016 Connie Loizos

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 ‘90s, during the 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 blogging about their work roughly a dozen years ago that writing as transparently as possible about VC began to border on competitive sport.

The exercise has paid off for many investors. Among those to actively work at raising their profiles and presumably, increase their deal flow, 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 LPs have largely remained in the shadows, 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 share 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.

Similarly, given what feels like an uncertain market, LPs are less interested in brand-new funds right now than in the second or third funds of micro venture funds that are starting to prove themselves. Forerunner Ventures is just the latest example. According to a new SEC filing, the San Francisco firm just closed a $120 million fund – a 65 percent jump up from its $75 million second fund.

Again, though, these managers can only make room for so many LPs.

Add to the mix LPs’ growing opportunity to co-invest alongside their VCs, as evidenced by the rise of special purpose vehicles — which we’ve written about here — and you can see why institutional investors might be experiencing more FOMO than they have historically.

How they’re competing with other LPs differs. While many are undoubtedly debating their strategies internally, some 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 these tweets are among 130 total that the firm has ever published, so, baby steps.)

Other LPs are taking a much more aggressive approach, comparatively, including Chris Douvos, a managing director at the fund of funds group Venture Investment Associates who has famously written a widely-written blog for years. (In one recent entry, he offers this 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 of funds and whose team has backed roughly a dozen early-stage firms, including August Capital, Data Collective, and the Berlin-based firm Point Nine Capital, is another LP whose star has been rising because of her public outreach (which has included writing stories for TechCrunch).

Over coffee recently, Clarkson talked at length about that array of activities that Sapphire involves itself in, including, yes, blogging about what it looks for in a venture team, as well as including helping making introductions to its VC clients’ portfolio companies. Asked why she bothers, she seemed surprised by the question.

“I don’t pretend that what we’re doing is brain surgery,” Clarkson 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?”

Photo above of Beezer Clarkson, courtesy of this terrible photographer.

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