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The Full Ratchet

Investor Stories 434. How LPs Judge Performance, Managing Founder Conflict, and The Blind Spots Investors Must Confront (Schuler, Niehenke, Agarwal)

4 min episode · 2 min read
·

Episode

4 min

Read time

2 min

Topics

Relationships, Investing, Startups

AI-Generated Summary

Key Takeaways

  • LP Performance Metrics: Limited partners evaluate venture funds primarily through distribution frequency and cash multiples returned, not strategy discussions. Strong DPI drives re-investment in subsequent funds.
  • Board Conflict Resolution: Investors should establish disagreement protocols upfront with founders. The recommended framework gives tie-breaking authority to CEOs, treating them as primary decision-makers when board deadlocks occur.
  • Evaluating Blind Spots: Founders who ask investors to identify their evaluation blind spots create honest dialogue and force real-time auditing of investment criteria, revealing gaps like underweighting iteration speed.

What It Covers

Three venture investors share perspectives on LP performance metrics, handling founder disagreements as board members, and identifying personal blind spots when evaluating startups.

Key Questions Answered

  • LP Performance Metrics: Limited partners evaluate venture funds primarily through distribution frequency and cash multiples returned, not strategy discussions. Strong DPI drives re-investment in subsequent funds.
  • Board Conflict Resolution: Investors should establish disagreement protocols upfront with founders. The recommended framework gives tie-breaking authority to CEOs, treating them as primary decision-makers when board deadlocks occur.
  • Evaluating Blind Spots: Founders who ask investors to identify their evaluation blind spots create honest dialogue and force real-time auditing of investment criteria, revealing gaps like underweighting iteration speed.

Notable Moment

A founder disarmed an investor by asking them to identify their biggest blind spot in company evaluation, forcing immediate reflection on whether they asked the right questions.

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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 Barry Schuler of DFJ Growth. Barry, I've raised about a $100,000,000. You've raised many, many billions. Mhmm. What what is the best question an LP has asked you? Look. I think I think l LPs are pretty binary. And and when I say that, it is they're they're investing in us to send them money back, to make a multiple on their money. And and, generally, the good LPs are not gonna question, you know, what what what you're doing. And but that only works as long as you're you're distributing frequently and you're sending them multiples of of of cash. And, you know, of course, we'll get questions. They're they're mostly interested in what categories are we interested, what are the themes we're chasing after. And and and and so for us, and I think it's it's also, you know, we we've had great performance from our funds and they're happy, but it's also, what have you done for me lately? And and and so Showing the DPI. Yeah. And so I think the trick is is is, you know, constructing your funds in a way and getting them the cash back. It has a dual effect of they get the profit dollars, and they wanna come in your next fund. 100%. On today's special segment, we have Alex Nihanki of Scale. Alex, what's the best question a founder or an investor has asked you? I think that disagreements are healthy, and I think that they should be vocalized. And I probably air a little bit more on the side of, like, be comfortable within confrontation, if it's healthy confrontation. And so I like when founders ask me, how do we deal with disagreements? How do we deal with ties? What happens when you and I are at odds with each other? And I wish that founders would ask me that a little bit more frequently. Because usually within a year or two years, we stumble across some sort of topic that's a little bit sensitive for both of us, and we disagree around that. And I'm …

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