“Be nice on the job and happy with the way you’re doing it.” That was our rallying cry in the beginning of Homebrew. We figured that if we loved it, however weren’t financially profitable, we couldn’t do it for the remainder of our careers. And if we made cash, however weren’t pleased with the work, we wouldn’t do it for the remainder of our careers. So why not give attention to each. This prolonged to how we pitched LPs as nicely, aiming for a really concentrated base of institutional buyers. We figured that given their dedication to the asset class, as long as we did our job nicely and handled them like companions in our enterprise, they might present up every fund to again us.
Years later Satya and I additionally began Screendoor alongside Homebrew. If Homebrew’s objectives have been to again distinctive founders constructing firms then you’ll be able to consider Screendoor as backing distinctive founders constructing new enterprise corporations. We’re now 4 years in, having invested in virtually two dozen VCs, which by the best way, in case you’re elevating a fund, tell us. Whereas Homebrew was all the time meant to be simply the 2 of us, Screendoor is extra expansive and now has a crew of three operating the present.
One of many of us, Lisa Cawley (Screendoor’s Managing Director), just lately revealed a weblog publish referred to as “Work together with your LPAC, not in your LPAC,” which acquired me fascinated with Homebrew’s LPAC (Restricted Associate Advisory Committee). Ours has all the time been small – similar to our LP base generally – and we’ve labored with them in methods which are spelled out in our LPA (Restricted Partnership Settlement) but additionally used them for recommendation, because the title suggests. Lisa’s publish – and extra coming – goes into depth about what an LPAC is and the way it may be useful for a VC, particularly a brand new agency. To make it actually tangible, listed below are examples of why we’ve gone to our LPAC over the 12+ years of Homebrew.
Commonplace Asks/Approvals
- Extensions on fund size as wanted – everybody is aware of it’s taking longer to get liquid. No purpose to promote winners prematurely simply due to authentic fund size, particularly given our LPs are largely cash-on-cash return centered greater than IRR.
- Exceeding our limits on firm focus and recycling – we’re aggressive in utilizing early liquidity to get extra activates the {dollars} relatively than distribute. We’ve hit 120%+ recycled in most of our funds, and have gone past our 10% focus restrict (per the LPA) in a minimum of 4 investments.
- Investing in a startup throughout funds – whereas we typically don’t wish to do that (for numerous causes), there was an event or two the place it made sense.
Scenario Particular Steering We’ve Requested About
- Taking early partial liquidity – Massive believers in sensible portfolio administration and that for true seed funds, taking secondary liquidity is a vital device for use. Whereas that is now changing into extra frequent, after we began exploring these alternatives it was just a little extra contrarian, or a minimum of, not talked about publicly. We requested our LPAC about what frameworks they’ve seen throughout their enterprise portfolios. Not surprisingly there’s nobody method – a few of their managers by no means promote ‘early’ whereas others had a rule of thumb to attempt to pull 1x the fund out of their ‘unicorns’ at every development fundraise. Most encouraging was listening to from our LPAC that we should always by no means really feel strain to promote prematurely simply to create DPI forward of bigger good points. And that they belief our judgment since we knew extra in regards to the firms than they did. So good to have longterm companions like that.
- Dwelling our values – Some time again we encountered a scenario the place we felt that, regardless of our greatest makes an attempt to supply another, a portfolio firm was making a call that challenged our values. We sought some recommendation from different VC mates however finally needed to do one thing nobody advisable: promote our shares again to the corporate at our price, regardless of an in-process financing occurring at a better valuation. We shared this resolution with our LPAC and once more, obtained nothing however assist from the LPs.
Most of those have been advert hoc emails or cellphone calls, however we ensure that to get our LPAC collectively every year as a part of our AGM, often in an off-the-cuff lunch or dialogue previous to the principle presentation. They’ve been invaluable and we really feel actually lucky to have a relationship that’s professionally oriented but additionally supported by care and private affinity.
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