I’ve asked many general partners this question over the course of my 20-year career. It seems to be a reasonable question, especially for venture funds that are nearing their five-year anniversary.What I’m looking for is the fund manager’s view of which companies look like winners and which companies aren’t quite cutting it, so that they can manage the portfolio to support only those that deserve additional capital. I understand this is an extremely difficult exercise—especially for very early-stage companies or when the outcome is truly binary, like with many health care investments.
I would suggest that picking the winners from the losers—and more importantly, effectively managing the fund’s capital—is specifically the role of the GP (and for which the limited partners pay a management fee). Keeping that in mind, maybe the better question to ask is, “How are we going to make money in this fund?”
The natural tendency is for VCs to talk to LPs only about their portfolio companies and omit a broader discussion about the fund. While this level of detail is important, the discussion I’d also like to have is more holistic in nature. I want to hear about how a VC incorporates the performance of an individual company investment into a broader view on the projected outcome of the fund.
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Author: Lisa Edgar
