Charles HudsonFounder and Managing Partner, Precursor Ventures

VCs: Do You Actually Understand LP Pressure?

2 May 2025 · 1 min

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Charles Hudson explains how some LPs' bonuses are tied to IRR while others aren't, creating wildly different incentives. Fund managers who don't understand this dynamic can accidentally tank an LP's compensation by getting the timing of distributions wrong.

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And we have some LPs who get graded on IRR. And so if it takes us a long time to get them their money back, we are impacting their bonus, we are impacting their perception inside of their firm, and we are, generally speaking, not helping them get ahead in life. Sometimes there's nothing you can do about it. But I do think it's important as a fund manager to really understand. And we have other LPs who are just like, I don't get comped on IRR. It's like, not part of our comp formula. I mean, I care about it, but I thought other people were like, our bonus is tied to irr. And at the end of the year, if you don't do a good job on irr, I will make less money. I don't know if any of you know Chris Duvosis.