After building NextView for almost 10 years now, I’ve been having more conversations recently with first time managers looking for some tactical advice. Raising one’s first fund is hard, and there are always a plethora of voices that will tell you that it’s impossible for many different reasons. I am by no means a sales or fundraising expert, but I’ve learned a bunch of lessons going through this process several times now. And one important lesson that I’ve internalized is that you don’t want to just pitch “what you have to sell.”. You want to think about “what your customers want to buy” and then adjust your pitch accordingly.

At first glance, you’d think that all LPs pretty much want to buy the same thing. Wouldn’t they all just want superior returns delivered by a trustworthy team? That’s kind of a given, but it’s insufficient. Every fund pitching an LP is pitching this as a baseline. And yet, LP’s get to “yes” in a few cases and get to “no” in most cases.

It turns out that different LPs are “buying” slightly different things depending on their own situation and incentives.

 

Some LPs are very focused on long-term returns and relationships.

They tend to prioritize stability that they can count on for decades. Their processes tend to be long and very relationship and team oriented. You are more likely to get quirky questions around team dynamics, decision-making, etc. These firms want stability for their institution, and they in turn “sell” their track record of stability to the best funds that they have access to. This tends to be how endowments and large foundations operate, for example.

 

Some LPs are buying unique access.

This tends to be the perspective of fund-of-funds who themselves are working on behalf of clients that are paying a fee for their services. They need to show their clients that their fees are justified in a market where it takes a long time to show outperformance. So in the near-term, they want to show that they are getting into funds that their clients would have trouble getting access to directly. In some cases, this is because these funds are oversubscribed. And in other cases, it’s because these funds are in new areas or pursuing new strategies that the underlying clients don’t have the time or expertise to explore and diligence. Examples of these would be seed funds 10 years ago, crypto funds 3 years ago, or international funds. If you are raising money for a strategy that is in a relatively new and very trendy market segment, Fund of Funds are more likely to be intrigued.

 

Some LPs are buying access to direct investment opportunities.

This is the case for some fund of funds as well as some family offices. These groups are investing in funds to get a good return, but perhaps more importantly, to be able to track their portfolios and be able to deploy more dollars in later rounds directly and with lower fees. There firms often have direct investment teams that are as big if not bigger than their fund evaluation teams and love the idea of VC’s sharing their downstream pro-rata rights in the form of SPVs or direct investment opportunities.

 

Some LPs (mostly family offices) are making investments opportunistically.

A new fund may just be the most interesting new investment opportunity that crosses their path in the moment, or it may happen to pique the interest of the decision-maker for personal reasons. This capital is often very quick to unlock but might not be very sticky over multiple funds. A lot of this may be timing or relationship driven with the principal or a family member.

In addition to thinking about the LP overall, it’s important to think about the decision-maker. What is the person’s seniority and tenure? Are they a principal or an agent? Agents that are new are trying to prove themselves and not get fired, so they are less likely to take risk on an unproven team. Deeply tenured folks or principals might be more willing to take fliers or make non-consensus decisions.

As our firm has matured, we’ve had an evolution in terms of our LP base. We’ve added a few new LPs with every subsequent fund, and I’ve found that the profile of LPs that we’ve brought in have been slightly different based on the dynamics above.

We were lucky to get institutional LPs in our first fund. But the individuals that championed us were folks who were deeply tenured within their organizations. They weren’t worrying about job security and could take some risk on a new team and strategy they believed in.

Our second cohort of new institutional LPs were largely folks who had studied our space closely and had a concerted focus on finding new seed specific managers. There are firms had done extensive analysis of our entire landscape and were making early commitments to the space even though the data was early.

Our third cohort of new institutions have been those focused on stability and long-term returns. They’ve been able to watch our story unfold over time and are less focused on the seed strategy specifically. They are generally committed to early-stage venture for the long term and are focused on whether they believe that we’d be great stable partners and that our performance will persist over multiple market shifts and economic cycles.

We are very grateful for all the LPs that have chosen to trust us with their capital over the years. Even though what likely piqued their interest initially may have been different, their long-term goals of great sustained performance are the same. So ultimately, delivering on “what we had to sell” was the most important thing. But in the search for true believers early on, it was really important to understand how that fits with what prospective LPs were looking to buy. That seems obvious, but that’s a lesson that has really stuck with me, and is probably pretty relevant to any fundraising or enterprise sales effort.