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As an LP, mastering "ex-ante" decisions when investing in VC is critical.
It refers to making forward-looking investment choices based on the probability of future success rather than relying solely on past outcomes, acknowledging the inherent uncertainty and long-term nature of Venture Capital.
This is even more relevant when assessing new and emerging GPs (Fund Is to IIIs).
It means several things:
When an LP makes an ex-ante decision, they are not buying a "secondary" or looking at what has already happened. Instead, they are actually just looking at what is the probability of success in the future for the GP. This is crucial because, especially for new and emerging managers, assessing that takes minimum 8 to 10 years to know if somebody was a great picker or they just happen to be in the right rooms.
Because future success is always uncertain, LPs must focus on process more than just outcomes in the past. This means understanding how the GPs think, the managers' mental models, their thought process, and their strategies. Looking for GPs who have completely stressed tested every single assumption they make, is a good approach (e.g. with the "minimum viable fund size").
For a deeper understanding of this process, LPs should ask really dumb questions that GPs are not used to see, in order to unearth the Why behind their beliefs.
Eventually, and especially with new and emerging managers where traditional performance metrics like are not available, the ex-ante decision ultimately should be a bet on the person. LPs must be looking for unique drive, self-awareness, ambition, and an asymmetric edge in the GP. It is about investing in GPs who are building a 20, 30, 40, 50-year firm, not just trying to raise a fund because it seems like a fun thing to do.
As an LP, mastering "ex-ante" decisions when investing Venture Capital is critical. 0 reply
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