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5. the limited partners
There are some brilliant LPs for sure. But as a whole most
LPs are bean counters, asset allocators and will always select
the shitty Brand Fund raising its seventh fund vs. a great
emerging manager with a better track record.
LPs are the lagging-most indicators in the entire economy.
I have had LPs tell me recently that they are really focused
on finding new "social media funds" — really now? After
so much of the value has been created? LPs are herd thinkers
extraordinaire. They rarely ask GPs the hard questions like:
• How do you divide voting and economic control of the
LLC entity that owns the management company?
• How are junior people compensated? And then isolate junior
people to ask them.
• How has the firm done vs public market benchmarks?
• Are the GPs really working or do they take the summer
off, spring break two weeks off, December off etc? What
am I buying with my 2.5% fee?
• Show me your investment themes for the past year? or
your investment memos and diligence packs for your biggest
three deals.
• Lack of creativity with fee and carry structures (ie, lower
fee, higher carry)
LPs like to "buy IBM" — that hurts this industry and creates
hard conditions for new VCs from existing funds to start
their own funds. There is no seeder community like there is
in the hedge world. And so there is very limited job mobility
in all fact.
6. economics
The salary is great. But then you back out the 1% to 5% that
GPs have to pay in to the fund and for the younger partners
making closer to five hundred thousand dollars per year and
having to pay in their percentage of that GP commit, the economics
do start to look markedly worse. I am just seeing my
first carried interest checks now — after ten years in the industry!
And like I said, this is a brand name very "successful"
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