Starting a VC Fund, Episode 11: Your First Meeting with Limited Partners

Hi there. I'm Patrick Evers. I'm the founder and CEO of Mind Maven, an executive coaching firm that helps people free up 10 hours a week and then invest their time into relationships. And we have.

I'm Charles Hudson, founder and managing partner of Precursor Ventures. We're an early stage venture capital fund that invests in founders at the earliest stage possible.

And today we're going to talk about the first LP meeting that you'll have. And so the first thing to think about is, like, what happens? What happens first?

Yeah, I've had a lot of first meetings with LPs at this point, and I find that they have a certain rhythm to them. I think the first thing to Remember is most LPs will want your deck in advance. They're going to want to see the materials, they're going to want to review it. And I found that unlike some venture capitalists, the LPs will actually go through the deck and read it. If you send it in advance, they will come to the meeting with some general sense of what you do in most cases. And I think they take the preparation for these meetings pretty seriously. So if they ask you for the deck, I think you should have a version of it available. This is a small point. I know right now it's very common to send decks using links, whether it's a Dropbox link, a Google Docs link, DocSend, whatever. There are certain types of LPs whose firewalls and security policies allow them to download links. And while links are great for analytics, I would hate to see you not get a meeting because you won't share a PDF version of your deck in advance with the prospective lp. I'd also say in general that trying to get them to sign an NDA in advance of signing the deck, generally speaking, doesn't work. So they're generally trustworthy people. And I would say if they tell you that they need the deck in a specific file type or format, I would provide it to them rather than stand on principle.

All right, and so what happens the moment I walk into the zoom room or into the actual room?

You know, I think what I found is even if I've done my homework and know a fair amount about the organization, I always ask the people that I'm meeting to tell me a little bit more about their organization. And oftentimes they'll say, hey, we're the such and such Foundation. We've got X amount of billions of dollars under management. We've been around for 55 years. Our express purpose is to support the aims of a B and C organization. And we've been in venture for 25 years. And a couple things. One, I like and generally enjoy hearing how people describe their own organizations. But oftentimes in the telling of that intro story, you'll get information that's really valuable for you. If someone says, hey, we've been venture investors for 30 years, you can say, wow, well, like, well, what are some of the firms you've been in? That's you, you were early to venture. Like, what are some of the firms you've invested in? Or sort of. They'll give you some clues about the kinds of things that they like and how familiar they are with venture. I've had first meetings where people have said, we're rebuilding our venture program from scratch. This actually happens quite a bit. If a firm has had a transition at leadership, they'll say, we have a brand new cio. So we're revisiting our entire venture program with an eye towards sort of refreshing our relationships. This is good context for you to know going to this meeting. And I think it's also good courtesy to be as interested in the person you're meeting as you are in telling them your story.

Let me get that straight. What you're saying is start the meeting with those questions.

Take the initiative.

Always, if you can. I mean, sometimes they'll want to jump right into the deck. And I always like to at least pause and try to get them to tell me a little bit more about the organization that they represent, Its aims, its goals, its mission, its structure. It's really helpful. And it's kind of awkward, I find, to ask all those questions at the end because by then you've spent a bunch of time presenting and speaking.

That's a fair point. So what advice do you have to.

Show up with that type of confidence? If they said, okay, can you start with a deck? How do you still dare to squeeze in the those questions? What do you say?

I generally would just say.

That'S okay.

Yeah. So everybody, everybody here watching is, that's Charles's son who's a little bit unhappy that we can't help him go to bed quite yet, but we'll finish this video and you might hear them. So. But yeah, what do you do?

Okay.

No worries. We'll pause this.

All right, we're back.

So the, the.

The question was just to repeat it again. It's like, how do you actually switch the topic from them wanting to see your deck to you getting permission to ask a bunch of questions? What do you say, I always tell.

People, I, I can't wait to walk you through the deck. I would really love it if we could just take two minutes for me to learn a little bit more about your organization and you and make sure I have all that context before I jump into the pitch.

Yes, I think that's really powerful. Or even ask for permission by saying, hey, do you mind if I have a bunch of questions that I wanted to ask you? Do you mind if we cover those real quick first and then give them rationale like saying, hey, I do believe it'll actually help me present in a way that makes it maybe more meaningful or more relevant for you. So that, that probably would help. Okay. And so then you get those answers and it's your turn to present.

Yeah. And then I find, you know, you start going through your deck. And I think the, the thing that was a little unnerving to me in the beginning was the first few times I had LP pitches, they just let me run through the whole deck without asking questions and without interrupting, which is really different from the way I meet with entrepreneurs. I feel like with entrepreneurs as an investor, they start with the deck, they're making a presentation, and when you see something you want to discuss, you do jump in there and you say, hey, let's double click on customer acquisition, or tell me more about your distribution strategy, or I'm not quite clear on the business model. Can we spend some more time on that? I find a lot of the LPs I talk to, they will let you go through the entire presentation.

End to end without necessarily interrupting or asking a ton of questions.

So it's really important to recognize that because you might be coming from an environment where that you feel is very normal. And if you all of a sudden have a rather mild or calm crowd in front of you that is extremely quiet, it can actually be quite discerning. What I hear you say is, don't be discerned. This will be actually quite normal. How do you deal with this best?

I also think many times when you're presenting your deck for the first time, you're so nervous that you tend to race through it. At least I know I did. Tended to race through it and just want to get to the end because the prospect of pitching it was so nerve wracking. So what I do now is I just try to build in pauses. I might talk for five to 10 minutes and just say, hey, I know I just shared a lot with you. Any questions on the things we just covered, and then you have to be willing to sit there for 15 to 30 seconds of silence because they might not jump in right away and be comfortable with that. And if you don't get any questions, go for another five or 10 minutes and pause again. So I find for me, it's helpful to try to break up the pitch and create space for people to ask questions. Then I feel like once you get the first person to ask a question, then you're fine, then the ice is broken and I find it becomes much more of a conversation.

Yes. And then even if they keep on being quiet, be calm, be cool, be okay with that. Right. I think you also told me that one of the things you could do is simply, simply, you know, stop at one point and ask people if they have any questions after, let's say, 10 minutes, saying something along the lines of, hey, I've talked for 10 minutes. Have you guys got any questions? Right. And that could work out well as well. Okay, tell me about, like, the typical meeting flow. You know, we started with the presentation. What else happens?

I find most LPs.

Pretty early on want to zero in on basically your, your model. Like how, what's your portfolio construction, how many companies you want to put in the fund? How are you going to support the entrepreneurs that you back? How are you going to choose them? How are they going to choose you? I think they pretty quickly want to get into the nitty gritty of how you operate. And a lot of times the first pass is sort of tell me the model and strategy. So you're going to get a ton of questions on the model and strategy. And you should have really good answers for those two questions. Like, you should really understand your model. Also, you should understand, like, what are the weak points of your model? For example, at Precursor, we make a lot of investments per fund. And so I just know and knew going to this, we were going to always get lots of questions on portfolio size and our ability to wrangle and stay on top of those companies. So that's something I've thought a lot about. And we have, I think, a pretty good answer to that question. So I would just say make sure that you don't get surprised by the obvious questions based on your model.

Okay, what else happens?

You know, then I think there's just usually a lot of back and forth. At some point they'll ask the, in some way, they'll ask the question, well, why you? What makes you special? What makes you unique? Why should I pick you out of the thousands of funds out there that are being Raised, like, why. Why pick your fund? What is it that you guys are doing that's unique or special? And I think you need to have a really crisp answer there. It took me a long time to get to a place where I had an answer that I felt like worked. But I would say, be prepared for that question. Cause you'll get it. And then I'd say, you know, towards the end of the meeting, usually they'll just ask you, so where are you with the fund? How much money have you raised? Have you had a first close? What's the timing when you're looking to wrap things up? And I would be really careful what you say here, because LPs are great at taking notes and greater remembering what you said. So if you don't really have a date on a first close, don't say, hey, we're doing a first close on May 1st. Because then May 1st will come. If you haven't had a first close, they'll just say, hey, how'd the first close go? You'll say, well, you know, didn't exactly happen. Rather, I would say, you know, we're gonna. We're looking to have our first close in Q2, provided that we can get everybody's. Through everyone's diligence process and get everything wrapped up. That feels like the likely timing. That I think is a much more accurate and honest answer. Oftentimes they'll ask you where you are with committed capital. And I think there's a big difference between committed capital and soft circle. So committed capital to me means the person has told you they're planning to invest a specific amount in your fund, ideally backed up with. With signed docs. Other people will say, I think I'm in for 1 to 2 million. Haven't decided the amount yet. To me, that's a soft circle. That person may or may not come in. They might come in at the high end of the range, they might come at the low end of the range. I think you can get yourself in a lot of trouble when LPs ask that question by not being honest and by sometimes being too specific.

Yes, fair enough. I think that's the. The one thing I wanted to bring up for everybody watching. If you jumped to this video from somewhere, definitely. Also watch the one on building your story, because basically what Charles just said is building the story is really, really important. And I think we did a whole session on this one.

Okay.

During the typical meeting flow, there's also basically a time where you get to ask questions about them. You know, we Covered it already in terms of doing that. Trying to do that in the beginning, but maybe drop a few words of why you think that's actually important, why you should do that.

I think you want to know who's in the room. Right. Like, I think anytime I go to a meeting, I kind of want to understand who's across the table for me. What are their roles? Who's responsible for what? What's the dynamic on this team? Can I get any clues as to how decisions are made? And can I get any clues as to the relationships among these people? Are they chummy? Are they professional and business, like, with each other? Like, what's their vibe? Because, you know, if you take money from these folks, you're gonna work with them, and so their organizational context will have huge impact on you. So I think the other thing I'm always looking to get out of these meetings is like, what's the team dynamic? I've gone into rooms before where there's 13 people in the room for a first meeting, and it can take a long time to sort out, who are all these people and what do they do? I've gone to other meetings where it's just been me one on one with somebody for the first four or five meetings.

Hey. And like, what you're saying is not only be aware of who might be in the room and be aware of their titles, but use the first meeting to read the room and understand as much as possible the power dynamics of that particular team.

Definitely.

Very cool. All right, good.

The other thing that I think you mentioned that's important is to.

Really also have enough time to understand how they are going to go about evaluating you. How does their due diligence, Due diligence process look like? Can you say a few words about that?

Yeah. I think it's really important to understand how that firm works because I found that different LPs have really different diligence processes. I've met some people who. You have one meeting with them, they you over the deck. Their next ask is, give me the full data room and everything, and we'll analyze everything and we'll come back to you with next steps. So I'd encourage you, once you start the fundraising process, have as many of the materials built out and ready to go as soon as possible.

Because it's.

You don't want to get caught in a situation where someone says, great, send me the data room, and you don't have it built out. That's. That's a. That can be a bit of an issue.

Mm.

There's other people that I've met who want to have four and five meetings just to get to know you and ask you questions before they really dive into the data. So I always ask people, hey, what's your process look like? Obviously, we've got a data room that we're happy to share, but what does your process normally look like? Is it sort of one meeting in data room? Is it like, what. And most people will tell you, yeah, you know, we really like to get to know people. We'll look selectively at the data room for questions that we have. We have this other questionnaire. We have this committee. I would say the one thing I didn't do enough when I was first getting started was asking people really basic, straightforward questions like, hey, when it's time to approve investments, how does that work? And a few people told me, hey, we have four committee meetings a year where we can approve an investment. And so I was like, oh, those are the four windows. So I need to have my work done with these folks in advance of one of those key dates, because if I don't, there's no way we're going to get presented. Now. You can't use that to then say, hey, we should plan on your next committee meeting. That's really for them to decide, not for you to decide, but it's important context to have.

Awesome. Okay, now the meeting is over. What's the most important thing you have to do?

I think the most important thing to do after the meeting is debrief while all that information is still super fresh in your head.

So be really disciplined about doing this, having even time afterwards. So if you have an hour with these people, make sure you have a half an hour afterwards to basically collect all of the thoughts of the experiences you've had from that session. But what would you collect?

It's really important. So one thing I wish I'd started doing earlier is I built sort of a. Basically a bug tracker or an issue log, an objection track, whatever you want to call it. I kept writing down sort of two broad classes of things from every meeting. Where did I feel like the meeting lost momentum? Like, where did we get stuck on something where I feel like I couldn't pull them back in? And second, like, what are the areas where I feel like we spent the most time talking about during the meeting? And I would just log those for every meeting. And it became really clear to me that the things that we were getting bogged down on in meetings were not the things that I had expected. So I Basically went back and retooled our pitch and story and said, well, these are the areas where people are getting stuck. I need to have better answers, a better presentation for these topics because what I have right now is clearly not working.

I would also take notes on anything I noticed about the team dynamic, any notes I had about the roles and responsibilities of the people in the room, and the reason I think it's this stuff is important is because in some cases you're going to spend years getting to know these LPs before they decide to invest in you and you decide to take their money. And I found it super helpful for me to have notes going back to our first interaction and be able to say, I remember when we first met, you were really worried about how we could scale the organization to keep up with the number of companies. Well, we're now 250 companies in and I feel like we've come a long way since we first met three or four years ago, specifically on this topic.

Yes, extremely powerful. All right, I think the last question that probably people would have is like, okay, what's your cadence around following up with LPs afterwards?

Yeah, I try to make sure once I start a fundraise that I have most of the commonly asked for follow up items ready. If someone says, I want the data room, we have a pretty quick and dirty way to spin up a new version for them. If they ask for some custom piece of analysis, we've got a team that can do it. And I usually will send people a note, not, you know, the minute I walk out the door, but maybe a day or two later, just thanking them for their time. If there were follow up items that they'd asked for, include those in the email. And I would say, you know, if entrepreneurs operate in days and weeks and VCs operate in weeks and months, most LPs they know operate in months and quarters. So I think, you know, if you send a follow up and you don't hear from them right away, that's not necessarily a sign. So I would just say that there's more damage to be done by being over eager in follow ups than there is to being sort of judicious. And when you reach back out.

All right, I think that was fantastic. So we covered what might happen in the first meeting and I really appreciate everybody for listening.