FO Conversation & Learnings

Had a great opportunity to chat with Ms. M who’s working at a family office. It’s such an educating conversation where she provided a lot of insights that I didn’t have a chance to learn from elsewhere.

Prefer disciplined GPsWe had chance to review some bluechip funds, but we wouldn’t invest even if we had the opportunity since we heard that they were not that disciplined. The GPs are chasing the hypes (FOMO) and invest in domains out of the fund’s scope sometimes. We would prefer disciplined GPs who do their own research and focus on the things that they know well.
Prefer emerging GPsThere are a few benefits working with emerging GPs.

First, they are more incentivized to find good deals – their funds are usually small, and they only get meaningful financial return when they get carry. However, the big funds can survive well with just management fees, and they may not be incentivized to find the best best deals.

Second, the emerging GPs will be very proactively communicating with LPs as the GPs want to build their brand and secure their future funding. While the big funds/blue chip funds often get oversubscribed, and the GPs may not be as proactive as the emerging GPs.
Prefer GPs without opportunity fund/vehicleSome GPs will have an opportunity fund set aside to invest into the winners coming out from the portfolio. However, as an LP, we would love to get into those opportunities and put big checks into those winners. If the GP has its own opportunity fund/vehicle, he/she may not share the (co-)investment opportunities with us.
Prefer fund 2 or 3We usually like to invest into the 2nd or the 3rd fund of the emerging GPs. The first one might be too risky.
Prefer emerging GPs who used to be the GPs at big-name funds or operatorsFor emerging GPs, we usually prefer the spin-offs – the GPs who used to be the GPs at top-tier funds. Alternatively, we also like GPs who used to be operators (founder of startups). If the GP has both experience (investment + operating experience), that’s perfect!
Prefer stage-focusedFull-cycle can be interesting, but as a FO, we may prefer funds focusing on early stages so that we can jump in and support during the later stages. However, this preference varies across different FOs – if it’s a FO that doesn’t have too sophisticated asset allocation strategies and they decide to heavily invest into your fund, then a full-lifecycle strategy can work well for them.

On the other hand, if the firm is doing full-lifecycle, their efforts might be diluted.
Prefer thematic funds over generalistsWe usually prefer funds with a specific focus/thesis instead of the generalist funds, because we believe that’s how you can find/evaluate the best deals with your industry expertise.
Prefer to invest into different themed fundsWe also invest into deep tech fund, biotech fund, etc. Actually the return profile & length of fund cycle (10 years) is pretty similar to your B2B fintech funds.

These deep tech funds are less correlated to the macro economy, while enterprise software and B2B fintechs are heavily relying on customers – when the economy is crashing and companies are cutting budget, the multiples come down, and the growth rate drops sharply. However, the deep tech stuff won’t be affected by the macro that much.

On the other hand, there are a lot of M&As for those deep tech companies – it’s easy and safe to expect those M&As/exits. While the exits for the enterprise software or B2B fintech companies may not be that easy – heavily depending on the valuation (M&A) and the IPO market situation.


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