I loved reading the peHUB article on Pivot Partners' survey that found that GPs think that LPs are liars. It reminded me to finish this blog post I started and spoke about at the VCIC conference this June and didn't finish.
The key takeaway from all of this reporting is one of my favorite passages from the Bible. Specifically, Proverbs 22:1 which states: "A good name is more desirable than great riches; to be esteemed is better than silver or gold". As an LP, great riches can't be the end goal alone, otherwise we would all be on the GP side where the economics are better. Moreover, endowments, foundations, family offices, insurance companies, and pension plans don't get a carry on their underlying funds like a FoF does.
If you don't have good looks, great intellect or a venture capital birthright (i.e., me), all one can rely on is their reputation. Everyday, my calendar reminds me of the Sophocles' quote that "A man can get a reputation from very small things".
While I think the headline "GPs think LPs are Liars" is just that, a headline meant to draw readership, I do believe that LPs can do more to not so hypocritically bemoan GPs for a lack of transparency and then not reciprocate. For years, LPs have complained about GPs not having an annual meeting, having a bad annual meeting, not having good quarterly reports, not publishing a data room, etc. The list goes on and on. Now, GPs are complaining about LPs' lack of transparency.
The Truth in LPing Act starts when responding to an in-bound email or phone call, or before you hit send on an out-bound email seeking a meeting or call (introductory or update). If you don't have money to commit, be upfront about it. Lord knows an entrepreneur doesn't want to meet with a VC without capital to invest, so why would a GP want to meet with an LP without money. I think a lot of folks don't have the confidence to be comfortable not knowing what they don't know, and are naturally inquisitive beings. Just as GPs chase the new new thing with founders and startups, LPs are constantly chasing alpha and the new new thing from the GP community.
Before I meet with a GP, I do my very best to let them know whether or not we have capital to invest, how much and when. I am too fearful of wasting people's time to do so otherwise. This also means, if you're a GP, you should be asking these questions upfront. It's not meant to be rude, but rather to understand why you're meeting. Spend five minutes talking about what that LP has done, is doing and wants to do. Ask how much they commit per fund and how often they re-up. Every LP (to the extent permitted by confidentiality restrictions, which are not to be taken lightly) should be ready, willing and able to give the same level of detail about their portfolio construction as a GP should for their own.
Don't take the answer: "We're over-allocated" or "Out of capital" without a grain of salt. Sometimes that just means "I'm out of capital for you, but if GP [ABC] calls, we can find room". A great reputation can't be built on what you're going to do. And it's easier to add to a great reputation than to get one.