Firas Raouf from OpenView Partners has today’s VC Post of the day up titled Should You Care About Your VC’s Investors? In it he covers some fundamentals about how VC funds are structured and then lists three things that the nature of the LPs of a VC firm will tell you about that firm.
- VC firm credibility: The quality of a VC can often be judged by the quality of its LPs. High-quality LPs invest in high-quality VCs.
- VC firm stability: Is the LP base stable, or is there significant turnover in LPs from fund to fund? Is there LP concentration, which would increase the risk of turnover? Are the LP funds stable enough to continue funding the VC over time?
- Exit Pressure: Are the LPs pressuring the VC for exits? What is the hold period that LPs are pushing for and how does it vary from the VCs period? How does either period differ from yours?
We cover a lot of this stuff, and more, in Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist in Chapter 8: How Venture Capital Funds Work but are psyched to see other VCs blogging about this in an effort to demystify how VC firms are actually structured, VCs are compensated, and what impacts their motivations at different points in the life of a fund or a firm.