Meet the Expert
Director of Investor Relations, Abingworth
- Consultant in investor relations for venture capital and private equity, with experience at three venture firms – VantagePoint Capital Partners, Bay Partners and Kodiak Venture Partners.
- Has served as primary contact with hundreds of venture fund limited partners, domestic and international, developing detailed ongoing communications, portfolio financial updates and meeting presentations.
- Has managed communications and public relations for major fundraising efforts, meetings with prospective investors, and preparation of due diligence questionnaires and related documents.
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Investor Relations for Venture Capital
Director of Investor Relations, Abingworth
- There's more focus on building individual relationships with investors.
- Venture capital is now a buyer's market and there's tremendous competition among VC firms for each dollar. Relationships are more crucial. In this business, people do business with people they like, and it works the other way, too. Investors will reject an opportunity with people they don't like. A firm with an arrogant partner who thinks he's great can really turn people off. Some investors won't even look at that fund just because of that one person. The importance of building relationships with investors can not be overstated. Even if an investor has said no five times, keep that investor in the loop. He or she may say yes the next time you ask.
- New outside third-party organizations are now rating VC firms.
- While not officially regulated, there are standards that everyone in the venture capital industry abides by. Cambridge Associates publishes quarterly statistics that set the benchmarks. Every firm compares itself based on these ratings. It's how you know if you’re a top-performing fund or not.
To predict how a fund is likely to do, the big sophisticated institutional investors have to crunch the numbers. They need access to all available data to do their own analyses. The Institutional Limited Partners Association (ILPA) has set guidelines for VC firms to follow in terms of disclosure. This is a two-way street. While VC firms have not traditionally been willing to share information, many limited partners cannot even consider making an investment without access to the data they need.
- Limited partners now do more due diligence before investing in a fund.
- There's now an extraordinary level of detail in the due diligence process. Prospective limited partners do extensive background checks. They ask repeated questions about the portfolio, and the succession plans, and any key people who have left the firm. They question the general partners separately to see if their stories match up. Investors take their time. They do their research. It can be frustrating, but the the limited partners are in control. VC firms must have their ducks in a row and be willing to give their limited partners and potential investors whatever they ask for.
- The limited partners now have more power and more access to information.
- .What was once a "seller's market" is now a "buyer's market." Ten years ago, the general partners were much more in control. The power has shifted. Traditionally, when the limited partners asked for data, they didn't get it. The general partner could just say, "No, we don't disclose that information." Nowadays, a VC firm will lose investors with that sort of attitude. To forge good investor relations, they must work at being transparent and accessible. They must answer all of the questions.
- There are very few high performing VC funds.
- There are a handful of top-tier VC firms that consistently produce amazing returns. They never have any trouble raising money. They have their pick of the "blue chip" investors – the companies everyone would love to have in their limited partner base. Most limited partners cannot get into these high performing funds because those sell out right away to the top investors. So they look to invest with the VCs that consistently deliver a decent performance. It may not be as stellar as a Sequoia or an Accel, but it's still strong.
- Referrals are on the rise.
- Referrals are now an accepted way to generate new leads. If a firm is cultivating an investor but the investor says no, it's now fine to say, "Well, okay, but do you know anyone who would be interested?” Of course, it's also fine to ask for referrals from the investors who said yes. It's a small world and the investors are all well connected. They know everybody. The investor who says probably knows of another who could be interested in the same product. This is a very good way to get a well-qualified lead. Cold calling is always the most difficult.
- More firms employ investor relations professionals.
- The industry has evolved. Not every firm has an investor relations or marketing professional, but many do. They tend to come to venture capital from a variety of different industries. These professionals are now forming their own networks. These networks can lead to an expanded perspective. They provide a good source of information as to what other firms are doing, how they're thinking and the various new approaches that are being tested. It's very helpful in terms of keeping things fresh. There's such a diversity of backgrounds, it makes for a lively forum for new ideas.
- Venture capital firms are always working to expand their base.
- Most up-and-coming VC firms are looking to expand their limited partner base even when they are not actively fundraising. They're seeking investors in different geographies, categories and sizes. They're also seeking investors who are not in the public eye. Many of these individuals are very private. They don't appear in any of the directories and they're not online with websites. It's no easy task to find such people. Firms are constantly trying to figure out who to go after, but the world is big and there are a lot of people out there who will be interested in the right investment.
Investor Relations for Venture Capital: Key Trends