Venture capital fund managers and their limited partners have the same goal—to invest in the best companies defining the future. But for general partners at venture firms, especially first-time fund managers, it's not always easy to navigate the LP ecosystem.
Lisha Bell runs the Economic Opportunity Fund at PayPal, which is a limited partner in 19 funds run by emerging managers. She works closely with her GP counterparts, and has seen the difference regular and candid communication can make to build strong LP-GP relationships.
Lisha recently joined Carta’s Innovators Summit for a panel on “Building Lasting LP Relationships” and sat down with Carta for a deep dive on the subject. Among the topics discussed:
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GP-LP communication
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Navigating difficult conversations
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Metrics LPs look for
Carta: You work with 19 emerging funds as a limited partner—what are your hopes for those relationships? What's an ideal LP-GP relationship in your mind?
Lisha Bell: I believe these relationships should be strong and that we should support each other's strengths and play to our weaknesses. And so for example, I am a corporate VC and within my corporation, PayPal, we have access to amazing resources—marketing and branding, engineering development, and more. And I want to be utilized for the ecosystem I have access to that can help. Maybe as a GP you have a fintech founder, right? Well, that's what we do. So we’d love to talk with your founder—maybe we can support, maybe we can help, maybe we can give ideas on commercialization. I think GPs want to be independent and not be told what to do, which I understand, but I think there can be a healthy relationship that benefits all and plays to all our strengths.
And I always tell people: Overcommunicate. You can't communicate enough about what the fund is doing. And that includes showing vulnerability. We invest in first-time, diverse, emerging managers. They're going to make mistakes. It's their first fund. They're learning as they go. And so I think that vulnerability allows us to have a very empathetic relationship. We want GPs to be honest. We already invested, we wrote the check, we're committed, and we want them to be great.
So I think it's okay to talk about things that they're struggling with or what they need help with or the lessons learned. We love to see how they evolve and mature over time.
For first-time fund managers starting their journeys, how would you advise them to go about finding LPs? What advice would you give them on finding those fruitful LP partnerships?
I definitely think it helps to show up to networking events and various conferences where investors are. There's nothing more valuable than in-person connections. I still think that's really important. That's a luxury, but if you are able to go and meet and greet and network, that's important.
I get a lot of introductions just via LinkedIn, and I can't invest in everybody, of course, but that’s a route that works too. I enjoy people putting me on their listserv; it's a passive and easy thing to do. I get their newsletters, I know what they're doing, and I think that's a great way to build those connections. Especially if you're a solo GP, you have limited bandwidth and I think that's an easy way to let people know what you're up to.
Showing what you're doing is really important. Sharing, “Hey, I just made this amazing investment. Here's why this is important,” and putting it out could spark dialogue with people who know people, who know people, who know people.
One thing I've heard from another LP is that they don't want to get treated like a piece of meat. We know you want money, it’s obvious, but people want that relationship, too. So I think building that relationship with people and rapport is really important.
What are the biggest potential causes of tension between LPs and GPs? What are common mistakes that fund managers might make and how can they be avoided?
I think the ultimate goal for GPs is that these investors will come back. That's a very important indicator and milestone. And so I think keeping that in your psyche is key. If you haven't communicated to your investors in, say, half a year, people are going to notice. And for the LPs, we are considering: Was it a good investment? Is this worth our time? Are we being a good steward? Everybody has to be a good steward of the money that they have access to, their assets.
And as a GP, you represent your LPs all the time. It's like, as a founder, you represent the GP who invested in you. It's the same thing, right? We all want to be proud of who we're investing in and why, and make sure our values are aligned.
There can also come a point where maybe you thought the fund would be something and that didn't materialize. Or you’re thinking, “I thought you would be 60% fintech, but you're only 10%.” I think those are real, honest conversations to have, and it may be that you have to reevaluate the relationship and decide if they're the right partners for you.
And GPs, as they get bigger and better, they get more choice too. So there could be FOMO on each side, if you don't lock it in.
Let’s talk about numbers. What sort of metrics will LPs want to see? For emerging managers when they're thinking about that communication and prepping for those meetings, what should they have ready to share with their LPs?
We want to see TVPI (Total Value to Paid In), ROIC (Return on Invested Capital), IRR (Internal Rate of Return), and so on. We want all those core, basic metrics.
But in addition, we have a diversity side letter where we measure economic impact. And so we say: How many people did you create jobs for? Did you create jobs in certain historically marginalized zip codes? Did you empower and invest in women? What kinds of companies are you building? Are they serving communities? We care about those things, too. Because VC is known for wealth generation and we want to create communal wealth. And so it's important to us. We're trying to disrupt the racial wealth gap, that's part of the thesis of what we're trying to do. And so it's important for us to know that our GPs are expanding the pie. Not all LPs have that requirement, but that's very important to us.
Earlier you mentioned vulnerability, and being able to talk about things that are tough. It’s been a hard year or so for startups and VCs. So if a manager has, say, less than great news to share with an LP, what would your advice be for how to navigate that conversation?
I think that LPAC (Limited Partner Advisory Committee) or investment committee meetings are important because that's your trusted tribe. So when you have tough times, you start with your trusted tribe and you let them know, 'Hey, this investment is going to run out of cash” or “Here are some challenges.” What LPs want to hear is: What did you learn?
Because people are going to fail. And I feel like GPs are always hard on themselves when companies fail. But most of them will. And if you're able to have that conversation and be informed about what happened, that’s key.
And it's not a matter of whose fault it is. You know there can be market changes, like if someone had an in-person business right before the pandemic. You can't predict the future. And so I think it's okay to just put it out there, share what you learned, and then have Q&A with your LPs. And then dust your shoulders off and get back out there.
