Relationship Advice of the Investor Sort with Meghan Reynolds of Altimeter | E2008
14 Sep 2024 (4 days ago)
Meghan Reynolds takes the stage at Liquidity Summit 2024
- It is currently the most challenging period in 25 years to secure capital.
- Limited partners (LPs) possess a sophisticated understanding of investments and will carefully assess deal size and market conditions.
- When pitching, avoid referring to deals as bets.
Meghan Reynolds’ talk, “Relationship Advice: Of the LP / GP Sort”
- The most important factor for investors is not returns, but rather effective communication, which fosters trust, mutual benefit, and shared insights.
- When conveying negative news, prioritize informing employees first, followed by Limited Partners (LPs), then portfolio company CEOs, and lastly, potential employees and other relevant parties.
- General Partners (GPs) should avoid assuming that LPs thoroughly read annual reports and should instead highlight important information through various channels like texts, WhatsApp messages, and multiple emails.
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Client service in investor relations and fundraising strategies
- Client service in investing involves empathy, understanding that investors have their own stakeholders to communicate with, and treating all investors equally, regardless of their investment size.
- Transparency is crucial in investor relations, and providing clear information about portfolio risks and potential upside can earn significant goodwill from investors.
- Fundraising success is heavily influenced by word-of-mouth and the satisfaction of existing investors, making good investor relations essential for attracting new capital.
The complexity factor in raising capital
- Limited Partners (LPs) will provide the necessary capital if a fund has a rational size.
- General Partners (GPs) should clearly articulate their differentiation in five key areas: sourcing, picking, portfolio construction, adding value, and exiting.
- GPs should prioritize investor relations and treat it as a continuous process, similar to sales and customer service in a company.
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Rationalizing fund size, securing re-ups, and worst pitching practices
- Fund size should be determined by market opportunity and optimal portfolio construction for maximum returns, not arbitrary goals.
- Secure re-ups from existing investors and seek referrals, as warm introductions are more effective than cold outreach, especially with institutional investors who often face an overwhelming volume of unsolicited inquiries.
- Avoid underselling investment performance, clearly articulate successes, and refrain from claiming disinterest in financial success, as investors seek motivated fund managers.
Market sentiment and single deal SPV dynamics
- Single deal Special Purpose Vehicles (SPVs) are becoming increasingly prevalent, offering investors access to specific deals with minimum investments as low as $55,000.
- Limited Partners (LPs) are expressing skepticism towards Venture Capital (VC) firms that offer SPVs for a significant portion of their fund investments, questioning the VC firm's conviction in the deal if they are willing to offload a large amount of the risk.
- While there is still a significant amount of dry powder available, LPs are hesitant to invest in venture capital due to concerns about high valuations, particularly in the context of artificial intelligence (AI), leading to a "wait and see" approach.
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VC allocations, private credit, and market dynamics
- Private credit is currently experiencing a boom, but tougher times are expected in the future.
- Two years prior, very few people in venture capital were familiar with the term DPI (distributions to paid-in capital), but now it is a widely understood metric.
- Limited partners (LPs) are now primarily interested in investing in funds that can demonstrate a track record of successful exits and distributions.