In this episode, I recount the story of attending my first LP event, explain why that was such an eye-opening experience for me, and share some thoughts on the world of venture capital.
Backtracks: Hey, I’m Clay. In 2013, I co-founded a company called LeadPages. Along with an amazing team, I grew that business to 45,000 paying customers while raising 38 million in venture capital. Now I’m growing a cryptocurrency data company called Nomics, spelled N-O-M-I-C-S. I live with my wife and two daughters in Minneapolis, Minnesota. This podcast is my entrepreneurial and investing audio journal. One of the most impactful things that’s happened to me during my entrepreneurial career was a time when I went to an LP meeting for a venture fund. My previous company, LeadPages, received a few investments, and one of the investments was from a partnership called the Foundry Group. As an entrepreneur who is in their portfolio or who had a company that was in their portfolio, I was invited to attend one of the LP meetings. Generally, funds or partnerships have a LP/GP structure. So GP stands for General Partnership, and those are the people, General Partners are the folks who run the fund. They make investment decisions and they generally have carry. Carry means that they profit when they make money on behalf of their investors, so they take a percentage of the profit generated from the fund. LPs are Limited Partners and those are the investors in the fund. Many funds, but not all, have LP meetings where they invite Limited Partners to come in from across the country and they sometimes discuss the funds, sometimes they talk about portfolio companies. In this one instance that I’m referring to that had a large impact on me,
Backtracks: I was invited to talk about our company and what we did, and I was making this presentation to the folks who had invested in the Foundry Group. This was impactful to me for a number of reasons. One, I think I got to see the level of money above the money that we had received, so I got to kind of jump up one rung in the ladder there. I think so many entrepreneurs are fixated on VC money, but it’s important to understand, I think, the level right above that. So at this meeting I heard LPs discussing a lot of the funds that they had invested in, the VC funds that they had invested in. I think at that time, I probably, I wouldn’t say idolized, but I think I had sort of out-sized admiration or esteem for venture capitalists and the venture capital industry in general. I got to hear these LPs who invested in a bunch of funds talking about different funds, weighing the pros and cons of different groups. I got to hear a couple of investors who invested in venture capital funds say some pretty negative things about funds that had rejected us when they were looking at companies to invest in. And that was an eye-opening perspective. I think it’s important to remember that venture capitalists have to raise money as well. The people who invest in venture capital funds, those money managers often have to raise money themselves. So I think that was really pivotal. I got to meet, at this LP meeting during the party afterwards, I got to meet people who ran sovereign wealth funds. I met someone with a trillion dollar portfolio.
Backtracks: It really gave me a sense of how money flows through part of the world, or at least through one vertical of the financial services industry. I learned a lot. So recently, I found myself in a position where I was able to not invest in VC funds, or at least I had not, but I invested in a couple of cryptocurrency hedge funds. One of the things that I asked when I was considering which funds to invest in was, I asked about LP meetings and if they held them, how often. Because this was something I really wanted access to and wanted to be a part of. I wanted to meet other people who invested in hedge funds and who were generally part of that world. Recently I came back from an LP meeting that a group called CoVenture that’s run by a guy named Ali Hamed runs. Again, that was eye opening. I got to meet some people. I shouldn’t name names here, and I won’t, but I got to meet one or two people who were somewhat luminaries in the financial services space and have conversations with them, and get a perspective on the world of money that I otherwise wouldn’t have gotten. So if you are a startup who is pursuing venture capital or venture capitalist pursuing you, one point of negotiation that I might suggest that you bring up is the potential to attend LP meetings. Again, I think it’s so important to realize that VCs who are evaluating you are also themselves evaluated, and the people who invest in the VC funds are themselves evaluated, and to witness all that. And two, if you are an investor in funds, I really think one of the best uses of your time,
Backtracks: especially if you’re new to the space, and this has been true for me, has been to attend these meetings. I would highly recommend that. So that’s the update for today. I hope it was helpful and a shout-out to Ali and the folks at CoVenture. It was a great meeting and a huge value add for investors, so thanks for doing it, thanks for having me, and please keep on doing ’em. All right, take care. That’s it for this episode. To sign up for our erratically published newsletter, listen to other episodes, or get the show notes for this episode, please visit clay.blog. I also invite you to check out my startup Nomics, spelled N-O-M-I-C-S, at Nomics.com. Finally, if you got value from the show, the biggest thing you can do to help us out is to leave a review with some comments and feedback on iTunes, Stitcher, or wherever you listen to podcasts. Thanks for listening.