“Be nice on the job and pleased with the way you’re doing it.” That was our rallying cry at first 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 concentrate on each. This prolonged to how we pitched LPs as effectively, 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 effectively and handled them like companions in our enterprise, they’d 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 possibly can 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 at all times meant to be simply the 2 of us, Screendoor is extra expansive and now has a workforce of three operating the present.
One of many people, Lisa Cawley (Screendoor’s Managing Director), not too long ago printed a weblog put up known as “Work along with your LPAC, not on your LPAC,” which acquired me eager about Homebrew’s LPAC (Restricted Companion Advisory Committee). Ours has at all times been small – identical to our LP base generally – and we’ve labored with them in methods which might be spelled out in our LPA (Restricted Partnership Settlement) but additionally used them for recommendation, because the title suggests. Lisa’s put up – 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 here are examples of why we’ve gone to our LPAC over the 12+ years of Homebrew.
Customary 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 targeted greater than IRR.
- Exceeding our limits on firm focus and recycling – we’re aggressive in utilizing early liquidity to get extra activates the {dollars} slightly than distribute. We’ve hit 120%+ recycled in most of our funds, and have gone past our 10% focus restrict (per the LPA) in not less than 4 investments.
- Investing in a startup throughout funds – whereas we typically don’t wish to do that (for varied causes), there was an event or two the place it made sense.
Scenario Particular Steering We’ve Requested About
- Taking early partial liquidity – Huge believers in sensible portfolio administration and that for true seed funds, taking secondary liquidity is a crucial instrument for use. Whereas that is now turning into extra widespread, once we began exploring these alternatives it was a little bit extra contrarian, or not less than, 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 progress 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.
- Residing our values – Some time again we encountered a scenario the place we felt that, regardless of our greatest makes an attempt to supply an alternate, a portfolio firm was making a call that challenged our values. We sought some recommendation from different VC associates however in the end needed to do one thing nobody really helpful: promote our shares again to the corporate at our value, regardless of an in-process financing occurring at the next valuation. We shared this resolution with our LPAC and once more, acquired nothing however assist from the LPs.
Most of those have been advert hoc emails or telephone calls, however we ensure that to get our LPAC collectively every year as a part of our AGM, normally in an off-the-cuff lunch or dialogue previous to the primary 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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