Everyone’s got a Boss, VCs are no different

Behind-the-scenes of an LP-GP relationship

First up, I’m sorry. This was supposed to go out last Sunday, but unfortunately I’ve been busy obsessing over the minute details of our LP meetup this week. Finally we finished with the meetup today and hence the post.

For the uninitiated, LPs or Limited Partners are the cash behind a VC. These are usually corporates, individual investors, government funds, pension funds, fund of funds, and so on, representing large pools of capital who diversify their asset allocation into a high-risk high-return business of Venture Capital. As they do not have the time to manage an active investment asset class like VC themselves, they invest in funds or GPs who execute and manage these investments on their behalf, and in return give them a commission on the earnings (carry) apart from a base salary (management fee).

To cut the long story short, even VCs have bosses, and these bosses are our LPs. VCs fret over finding good (long-term, experienced) LPs who believe in their vision and story, and once they have found these LPs and convinced them to invest in the fund, they fret over the results and the returns they can generate for the LPs. We do this, not just because we need to give returns for the money we invested, but because if we don’t, we won’t get the LP’s cheque for the next fund. The LPs don’t meddle in the day to day activities of a fund. But they do give feedback usually every year, and they do make a choice on whether to come back into your next fund based on the decisions you made in the last fund. A VC fundraising process and the annual meetup with the LPs is quite akin to a startup fundraising process and an annual shareholders’ meeting. It’s that one day of the year where we have to shed our hoodies and sneakers for a suit and tie (or in a startup founder’s case, the day you take a shower).

On a side note, most VCs hate wearing suit and tie. So did I. Mark Suster even has a post about it here. But today, after the meeting, I realised the importance of it. It’s a great reminder, the annual meeting, the suit, the tie, the presentation, the whole shebang, as to the fact that we are responsible for managing someone else’s money and if we make bad decisions (every VC makes these btw) then we have to answer to some one. It’s a humbling reminder that a giver is a taker as well, and the world always completes a full-circle.

It’s good for founders and ecosystem folks to know what goes on behind the curtains of a VC, and hence I give a summary of our day today.

1. The Returns
   We start the day with Amano-san, our CEO/Founder/Managing Partner giving a 15–20 minute overview of our fund performance last year. How much did we invest? How much did we recoup (actual returns)? How much do we expect to recoup (paper returns)? How much of the fund is drawn? What will be the fund activity in the coming year? You get the hint. It’s a good annual overview for the LPs who usually only see the fund performance once or twice a year, and do not obsess over the returns on a short-term basis
2. The Portfolio
   Next up, comes Tsutsumi-san, our second Founder/Partner, talking about the fund portfolio so far, and each portfolio company’s current status. He takes the LPs through our various investments, our value-up activities, key KPIs of our portfolio companies, and the next steps for some of the exit/value-up financings that we need to focus on this year. He takes the LPs through each company painstakingly and you can see the passion in his eyes when he speaks about each one of them
3. SEA
   This is where I come in. I start with an update on the overall SEA and India market, and what we are seeing in the startup ecosystem of these two regions (which is unfamiliar territory for the Japanese LPs). I then dive into our Southeast Asia and India portfolio, similar to how Tsutsumi-san did for the Japan portfolio. Focus is on ongoing value-up activities for the portfolio and any potential synergies for the startup with the Corporate LPs
4. The Pitches
   This is where we invite some of our portfolio founders to present in front of the LPs. This gives a taste of our investment and founder preference to the LPs and the startups get exposure to some of the top bosses in the Japanese market. We try to keep this curated, short, and sweet, as not every portfolio startup is relevant for every LP. This year apart from two Japanese portfolio companies Candee and Sorabito, we invited Ayopop from Indonesia and PopXO from India to participate
5. The Exit
   Lastly, this year I opted to call in one of our ex-portfolio company’s founder to talk about his startup as well as M&A journey. Pieter Walraven was gracious enough to give us a good background into Pie’s journey, as well as tips on how to prep a company for a potential acquisition, which founders of other portfolio startups found especially interesting

During these meetups, while no tough questions are asked face to face, especially in a Japanese business environment, it’s a good opportunity for us to keep the fund in check, setup goals and milestones for the next year, and strategise the whole investment team towards common goals of investing as well as generating returns. Without a suited-up checkpoint meeting like this, the whole fund can get carried away (pun intended) with simply making investments and not recouping anything, something seen quite often in Asia. On a side note, I read this today, and funny/sad to see them not mentioning GREE Ventures as an active investor in Indonesia. What really caught my eye though was the lack of exits for each of the mentioned VCs. I am glad that as a fund we focus a lot on how to return the capital we raise (and much more) back to our LPs, and I am sad to see similar focus not existing in other funds. Exits (ours or some other VCs’) are a welcome fresh air in a tough and emerging market such as Asia, and all boats get lifted by a higher tide of exits.

Hopefully this gives a good overview of what our LP discussions look like and the next time you meet a VC you can place yourself in their shoes and imagine how it would feel like for the VC to be presenting your company to their LPs. Will they be proud of what you have achieved and show case you as the shining star in the portfolio? Or will they be embarassed of declining KPIs and not mention you at all? The brighter you shine, the more likely you will be to elicit favorable response/partnerships from LPs and in turn the GPs.