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The Full Ratchet

Investor Stories 422: Best LP Question (Stevens, Patel, Shapiro)

6 min episode · 2 min read
·

Episode

6 min

Read time

2 min

Topics

Investing, Fundraising & VC, Leadership

AI-Generated Summary

Key Takeaways

  • Right to Win: LPs probe how funds maintain competitive advantage as competition increases. Energize Ventures built an in-house team called Edge that provides free expertise to portfolio companies, expanding their moat beyond traditional board support.
  • Ten Year Vision: Strong LPs ask where firms will be in a decade and what actions today honor that vision. Nava Ventures hired a full-time CFO for a small fund to build multigenerational infrastructure early, paying a high tax upfront.
  • Success Definition Alignment: LPs verify their definition of success matches the GP's approach. One LP explicitly sought early-stage managers swinging for fences, not conservative plays, ensuring philosophical alignment before committing capital across multiple funds.

What It Covers

Three venture capital investors share the most insightful questions LPs have asked them, revealing how allocators evaluate fund strategy, competitive positioning, and long-term vision alignment.

Key Questions Answered

  • Right to Win: LPs probe how funds maintain competitive advantage as competition increases. Energize Ventures built an in-house team called Edge that provides free expertise to portfolio companies, expanding their moat beyond traditional board support.
  • Ten Year Vision: Strong LPs ask where firms will be in a decade and what actions today honor that vision. Nava Ventures hired a full-time CFO for a small fund to build multigenerational infrastructure early, paying a high tax upfront.
  • Success Definition Alignment: LPs verify their definition of success matches the GP's approach. One LP explicitly sought early-stage managers swinging for fences, not conservative plays, ensuring philosophical alignment before committing capital across multiple funds.

Notable Moment

An LP asked how a GP personally defines success to verify alignment, revealing that mismatched expectations on risk tolerance can doom long-term LP-GP relationships before they begin.

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Episode Transcript

This episode of TFR is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners a $150 just to take a demo. We've never had an offer quite like this. Claim your $150 before this offer is gone at our partner link, ramp.com/partner/tfr. And this episode of TFR is brought to you by the American Arbitration Association, where smart startups and investors turn to for fast, efficient, and cost effective dispute resolution. Visit adr.org/tfr to learn more. Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is the full ratchet. Welcome back to TFR. On today's special segment, we ask guests to share the best question they've ever been asked by an allocator. Here's the segment called best LP question. On today's special segment, we have Kevin Stevens of Energize. Kevin, what is the best question an LP has asked you? The best question LPs ask is what is your right to win? We're in a space that is growing rapidly, both in interest and competitors, whether it's from folks that have never done this before, but have great track records elsewhere, or just new competitors. And they ask, how do you keep winning? How do you keep attracting good deals? How do you keep helping those companies? And I'm fond of the Steve Schwarzman quote, which is there's no IP in finance. And I think that's very true. And so for us, you know, I think we've learned over time that our right to win expands. So there was some internal thought like would in growth equity jumping from venture to growth equity, like our skills have always been helping and go to market and finance and then finding talent. And it was like, okay, but do companies with 25,000,000 in revenue still need that expertise? Do they still need us? And the resounding answer we've gotten is yes, we want that energy expertise on our board. We want this expertise on our board. And so we think a lot about how do we keep building in house capabilities. We have an in house team called Edge that helps our portfolio company that all work for energize, but are free for our portfolio companies to use. And it's like, how do we keep expanding that moat? Because I do think as we continue to generate returns in this space, smart folks will figure it out, and competition will increase. On today's special segment, we have Manish Patel of Nava Ventures. Manish, what is the best question an LP has asked you? The question I love that LPs ask is, like, where do you wanna be? You know? Because LPs have such a different time horizon than GPs, than entrepreneurs. And as an LP, good LPs are not investing in one fund. They're usually gonna invest in three or four funds, right, if they …

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