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How should family offices envision a 'great GP' in venture capital?
More Single and Multi-Family Offices (labeled here S/MFOs) are starting or expanding their exposure to venture capital. However, many still primarily focus on brand-name VC firms, potentially missing out on outstanding managers by relying solely on reputation.
S/MFOs should shift to evaluating all GPs through a holistic, multi-dimensional lens. The 'best GPs' offer much more than just successful investments. They bring alignment, reliability, and enduring partnership.
Here is a framework for assessing GPs and find the 'best' ones:
1 - First, there is the GP story. The question should be: does the GP’s origin and values resonate with your family’s mission?
2 - Then comes the investment process. Here too the question must be: is there a repeatable and disciplined strategy backing every portfolio decision?
3 - Subsequently, S/MFOs should consider operational excellence. They should ask themselves while considering a GP: is the team, reporting, and governance truly institutional-grade?
= Collectively, 'GP story + investment process + operational excellence' form the foundation of a great GP. This foundation should ultimately lead to top quartile (and ideally, top decile) financial performance.
Relationship value is of utmost importance in venture capital, because transparency, trust, and collaborative spirit should be woven into the partnership. Returns are the reward, but partnership is the foundation. This framework intends to help S/MFOs assess VC GPs not simply by funds performance (DPI/TVPI), but by cultural fit, strategic discipline, and the reliability of long-term partnership.
Notably, an increasing number of new and emerging GPs (typically Fund Is to IIIs) represent sound candidates, yet often overlooked by brand-dependent approaches, but attractive for patient S/MFOs capital.
(Note: this is an LP-GP post inspired by a read of a piece that was produced by Sequoia about building amazing companies.) 0 reply
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