The VC playbook for managing investor relations

A startup’s success lies not only in the quality of its products but also in the quality of its customer support. It’s similar for a VC, except its “customers” are investors or limited partners (LPs).

Managing relationships with LPs is critical for any aspiring VC fund manager. The task often involves dealing with a lot more LPs than one can imagine. In fact, Carta data reveals that almost a third of funds managing US$1 million to US$10 million in assets have 25 to 49 LPs.

I have spent most of my near 20-year career in investment management, with the last four years as founder and managing partner of Indelible Ventures. I’ve learned a thing or two about managing LP relationships, and I’m going to share some of these insights here.

Raising capital

One of the major challenges in investment management is raising capital. Interestingly, this particular hurdle can be demonstrated with the help of simple math. In short, it’s a numbers game.

Most emerging fund managers are likely to raise a smaller-sized fund, probably less than US$25 million. The Carta data cited previously shows a wide range in the number of LPs.

Let’s assume a fund size of US$10 million shared among 25 LPs. This means that, on average, each investor needs to contribute US$400,000. Knowing enough people with that kind of liquidity could prove difficult.

But even if you’re well-connected, expect that some of the folks you approach will turn you down. If we assume a 5% conversion rate, that will mean talking to 500 potential investors for a US$10 million fund. Now the math is starting to get hard.

See also: Here’s how VCs should size up first-time vs. repeat founders

Most jurisdictions have laws against marketing publicly or stringent rules you need to abide by when doing any marketing. So, on top of having to source, engage, and convince a huge number of potential investors, you won’t be able to rely on the same marketing tactics typical businesses follow.

Keep in mind that even after you’ve made a contact or lead, the journey toward locking in an investment is a lengthy process.

Maintaining relationships

Once the money is committed, communicating with LPs becomes critical. This part of investor relations ensures that the LPs actually know what is going on quarter by quarter, year after year.

Running a VC firm is a long-term business that requires raising one fund after another. So, ideally, investors from one fund are happy enough that they choose to continue supporting the next fund. It’s more effective and easier to retain an investor than to onboard a new one.

Setting the communication strategy

Knowing what you bring to the table