Should venture firms treat LPs as a primary customer requiring active relationship management, or as passive capital providers?

Jason Lemkin · May 27, 2024 · hedged

Supportive, relationship-based LP dynamics are better than transactional ones, and GPs should treat LPs the way they'd want founders to treat them rather than as numbers on a sheet

He has worked in both transactional and supportive LP environments and found the supportive one better; leaving a few nickels on the table and going the extra yard pays off

Scope: "I don't have the answers"

65:15 20VC: Why Seed is Systemically Broken | Why Pricing is Worse Than Ever and There is More Funding Than Ever | Benchmarks for Churn, Retention and Growth Rates - Good vs Great | Why Last Vintage for Private Equity Will Suck with Jason Lemkin

Mitchell Green · Mar 28, 2025

A venture firm has two customers — founders and, more importantly, LPs

Without LPs you do not have a business

45:19 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Harry Stebbings · Mar 28, 2025

It is arrogant for VCs to claim LPs are not their customers; LPs are a customer who deserve a great product

He is astonished by the unwillingness to recognise LPs as customers

45:29 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Semil Shah · Nov 21, 2022

It is naive to assume LPs who have committed will automatically want you to succeed and stay along for the ride; they can have very different motives and ways of asking for things

He was blindsided by two LPs' behavior, including one who demanded terms mid-cycle and threatened not to re-up, which he only understood after talking to colleagues

Scope: most of his LPs have been great; he blocked only two from future funds, for behavioral reasons

33:55 20VC: Semil Shah on The Biggest Mistakes VCs and LPs Made Over the Last 24 Months, Why LP Churn is Coming, Core Lessons on Scaling from $1M Haystack Fund I to Today and How To Find, Win and Manage LPs as an Emerging Manager

Jason Lemkin · Aug 23, 2023

Beyond a few core anchor LPs, GP-LP relationships are transactional, and LPs should be suspicious of GPs

Suspect GP behavior is subtle — overstating your role with companies, connecting dots that don't exist on ownership, stake and timing — and the difficulty of raising LP capital outside the best funds pushes everyone to be as aggressive with the facts as they can

Scope: different for very large funds; anchor relationships are genuinely trust-driven

30:05 20VC: NEW FORMAT: Mega Funds Will Come Back, Why Markups Have Corrupted VC, Why RIFs Should Always Be An Embarrassment To SaaS Founders and Why Pitching is BS and Fake with Jason Lemkin and Rick Zullo

Mitchell Green · Mar 28, 2025

Managers who communicate well and are decent to deal with are more likely to retain LPs through one or two bad vintages

People want the nice guy who communicates to win, so goodwill buys forgiveness for a weak vintage

Scope: performance is still a precondition — without good performance you get none of it; holds for one or two bad vintages, not indefinitely

46:25 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Harry Stebbings · Mar 28, 2025

LPs will re-up with managers even absent performance, based on relationship and communication

He has directly observed LPs coming back to managers who lacked the performance

46:44 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Mitchell Green · Mar 28, 2025

Firms backed primarily by large endowments and pensions structurally cannot treat individual LPs as an edge, whereas a firm 95% backed by individuals will give its whole investment team LP access and treat those individuals like gold

A VP at an institutionally-backed firm flying to Seattle would meet companies and fly home, never spend six hours with four LPs — it isn't their model

44:12 Individually lp backed firms treat lps as priority unlike institutionally backed firms

Mitchell Green · Mar 28, 2025

The venture industry's lack of transparency toward LPs is shocking, and firms should run themselves around LP retention the way an operating business tracks gross dollar retention

If you communicate constantly — events, quarterly calls, walking LPs through the portfolio — LPs understand that in a fast-growing portfolio some companies do well and some do badly in any given quarter

45:43 Firms should track lp retention like a core business metric through transparency

Mitchell Green · Mar 28, 2025

Treating LPs as take-it-or-leave-it counterparties destroys a firm's fundraising ability once performance turns

A very large PE fund that historically gave LPs three weeks and non-negotiable terms hit a bad vintage, has been in market three and a half years, and closed a fraction of its prior fund — LPs told him the problem is simply that they're jerks

46:52 Take it or leave it lp treatment destroys fundraising once performance turns

Beezer Clarkson · Oct 18, 2023

Managers should be candid with LPs about which portfolio companies they have questions about, walking through metrics and team status

Venture is a risk business and LPs don't expect every early-stage company to work

26:55 Managers should proactively disclose portfolio company problems to lps