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Investing is about relationships—and the most fruitful relationships are long-term ones.
Relationships with Limited Partners (LPs) can last for many years, even as roles and titles change. Your success in maintaining those relationships and partnerships means being smart about how you ride the ups and downs of investing with your LPs, even when times get tough.
While most dealmakers are optimistic about the future, those tough times aren’t far behind us. After an incredible 2021-22, private capital fundraising has seen a significant decline over the past two years. As of Q2 2024, global venture capital fundraising totaled $80.5 billion, on track to end the year at the lowest level in almost 10 years.
We’ve talked to many, many venture capital firms and venture capitalists over the years—including for the VC guide to fundraising in 2024—and we’ve identified three goals that must be achieved in the current fundraising climate for funds to see success:
- Prove the value of your VC fund and abilities as an investor to identify and conduct due diligence of promising startups and entrepreneurs in the ecosystem (regardless of macroeconomic conditions)
- Differentiate your VC fund from the current broader perception of private capital
- Identify, connect, and build relationships with LPs that are ready and willing to invest
Not every GP can appear as attractive as Blackstone or Apollo, but finding ways to communicate well with potential investors can be a massive differentiator that helps you achieve all three goals. That’s what we’ll cover here, with some tips from Eileen Tanghal, Managing Director and Founder at Black Opal Ventures, Katharina Porenta, Fundraising Manager at Speedinvest, and Joe Schorge, Founder & Managing Partner at Isomer Capital. They discuss how to manage investor relationships with relevant, targeted, and nuanced communication.
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Segment your LPs by interest, category, and stage
Eileen Tanghal, Founder and General Partner, Black Opal Investments, lives by marketing fundamentals when she’s reaching out to potential investors: “segment, target, position.” What this means is that she knows her audience deeply when she’s reaching out to LPs, so her communications are anything but generic.
For example, Black Opal targets LPs that:
- Care they’re a people of color, women-led fund
- Are deeply interested in healthcare
- Care about company mission as well as financial return
When LPs meet this criteria—which is specific by design—Tanghal says she segments further so she can speak differently to:
- Family offices
- Universities
- Funds of funds
- Individual investors
- Institutional investors
Joe Schorge, Founder & Managing Partner at Isomer Capital, added that this is when the “CRM element becomes really, really important”—to capture all of this criteria across many Associates engaging in real-life, relationship building moments.
“You know, you bump into someone at a conference,” he said. “You have a chat. You make a little note. Then your colleague goes to another tech dinner, and so on. It’s so common to have had four or five interactions as a firm even before someone becomes one of our LPs. Affinity's been really important for us to build this database that didn’t exist before.”
Learn how relationship intelligence can illuminate these previously hidden paths of connection.
Share targeted KPI updates—and have relevant conversations with LPs
Even if your investors aren’t looking for day-to-day, granular data from your portcos (but some may, so ask), they do have a keen interest in your VC firm’s performance. Your KPIs should not only be your north star metrics, but also tied directly to your investors’ goals.
Schorge said, “LPs want sharp, relevant news that's of interest to them. Let them know when you’ve closed a deal, when you’ve hired someone. All of that is welcome news, whereas the same news weekly—just raising something to the top of someone’s inbox—is when it gets repetitive.”
It’s important to track information like portfolio valuation updates, the number of deals currently being evaluated, and the number of deals you’ve closed in ways that can be easily visualized and shared. But also talk to your LPs to make sure the information you’re sharing is what they want to see.
For example, Schorge said, “Most investors [in Europe] are somewhere on a spectrum—investing purely for financial returns and purely for strategic reasons. Those who are purely financial want to see how you generate returns, your adjusted risk-return profile, and so on. The strategic investors want help understanding the complexities of the European market, or they may want to join your research program in some way. You therefore have different conversations with different groups.”
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Cover both highlights and lowlights
Most investors don’t need (or want) a stream of consciousness of everything going on in your office. As a venture capital or private equity fund manager, it’s crucial to consolidate your update to a few relevant highlights and lowlights.
A few highlights to consider:
- Portco IPOs
- Big award wins
- Major deals for your team
On the flip side, some lowlights to consider:
- Poorly performing portfolio companies
- Bankruptcies
- Disappointing exit-related news that directly affects the potential ROI
It may be nerve wracking to share struggles, especially when you’re trying to differentiate your firm in a tough fundraising climate. But Katharina Porenta, Fundraising Manager for Speedinvest (a pan-Europe, pre-seed, seed-stage, and early-stage tech VC firm) stresses the importance of transparency, even when conveying negative news. According to Porenta, transparency is one of the main reasons Speedinvest has been able to weather the latest economic storms.
“What’s important in retaining LPs is a certain honesty and communication,” Porenta said. “We always try to communicate why something has been valued down and why we've adjusted a valuation, then also show them what we're working on currently to change that.”
Use the time you have with LPs to make requests
This doesn’t need to be present in every update you send, but your LPs need to know if you need additional support. If you’ve uncovered an amazing opportunity but need help co-investing, your LP update is the perfect place to let them know. Transparency is essential to maintaining your relationship with them, and they want to help you succeed.
Improve your end-to-end fundraising process
Here we’ve focused on how to communicate with LPs, but that’s only one part of the fundraising process. Read our VC guide to fundraising in 2024 now to adapt your fundraising practices to this more challenging market.
When you’re ready to make your next fundraise more efficient, check out Affinity, the CRM built for private capital. Affinity redefines how you manage LP relationships and the fundraising process by automating key workflows and providing AI-driven insights into your network. The result? Close funding rounds quicker, retain your best investors, and expand your LP network.
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