My Learning on Best Practices for Outreach to Limited Partners (2024)

Venture capital fundraising has been challenging over the past 24 months. Economic headwinds and market uncertainties have led to a slowdown in investment, with VC investment declining by 34% quarter over quarter in 2023. Many firms have delayed fundraising and slowed down their investment pace to make current funds last longer. The process of fundraising has become longer, with some firms extending their fundraising deadlines up to 18-24 months. Despite these challenges, there are signs of improvement. However, as fundraising improves, the ability to effectively reach out to Limited Partners (LPs) can make a significant difference in the success of a fund raise. Through my experiences, I've honed a set of best practices for reaching out to LPs that I believe are essential for emerging VC managers looking to build meaningful relationships with potential investors.

Here's what I've learned and I welcome your learnings and comments:

1. Understanding the Landscape: Identifying the Right LPs: The foundation of effective outreach lies in identifying LPs whose investment philosophy aligns with your fund's strategy. It is about doing your homework to understand their preferences and tailoring your approach to meet their interests. While databases selling investor information are available, they are unlikely to yield results without coupled deep diligence on their interest levels. Research their investment preferences, past investments, and areas of interest. This will help you tailor your message to their specific needs and interests. Note that there is still a class of investors stuck a couple of decades behind in time who don’t want to hear from anyone cold, outside of warm introductions. In such scenarios, the best approach is to ignore them and focus on those open to hearing new ideas from a variety of backgrounds. (My personal view on the need for warm intros is quite negative as this type of behavior is what has created the lack of diversity in the investment industry in general and the venture capital industry in particular.)
2. The Art of the First Impression: Crafting a Compelling Initial Message: Your first message is your chance to make a lasting impression. It should be succinct, clear, and engaging, quickly highlighting your fund's unique value proposition and the expertise of your team. Capture their interest swiftly by articulating your fund's unique value proposition, highlighting your team's track record, and showcasing your expertise and understanding of mutual fit.
3. Beyond the Introduction: Nurturing Relationships and Clarity in Communication: Cold outreach is just the starting point of what should evolve into a deep and lasting relationship. Regular, thoughtful communication is key to nurturing these budding partnerships. Developing a systematic follow-up strategy is crucial for engaging LPs who haven't yet responded.
4. Steering Clear of Pitfalls: Avoid common mistakes like misdirected emails, overly verbose messages, or inadequate follow-ups. These errors can cost you valuable opportunities. Investors receive numerous emails daily. Keeping your message short and to the point increases the likelihood that it will be read.
5. Demonstrating Fund Savvy: Understanding and Communicating Your Fund's Metrics: Whether you're raising your first fund or your fifth, a deep understanding of VC metrics and the ability to communicate them effectively is critical. It demonstrates your grasp of the business and your commitment to transparency. Investors are interested in results. Share success stories, founder testimonials, referencing past investments, discussing shared connections, or highlighting aspects of your startup that align with their investment focus.
6. Power of Perseverance: Fundraising is a marathon, not a sprint. A strong GP/LP relationship is built on clear and consistent communication.Keeping LPs informed about your portfolio's performance and strategic direction is fundamental. It's a delicate balance of persistence and respect for their time and interest. Persistence in both cold outreach and follow-ups, even after initial rejections, is essential to eventually securing the trust and investment of LPs.
7. Tailoring Your Pitch: The Key to Resonance: A pitch that resonates with an LP is one that's crafted specifically for them, focusing on their decision-making needs rather than your own aspirations.Experiment with different subject lines, email formats, and messages. Monitor the response rates to different approaches and adjust your strategy accordingly. Just like any marketing, you need to do A/B testing of your messages. Also, be clear about what you're asking for. Whether it's a meeting, a phone call, or feedback on your pitch, make sure your request is specific and easy for the investor to act on.
8. The Cornerstone of Your Pitch: A Well-Defined Investment Thesis: A clear investment thesis is the heart of any successful outreach. Having a clear articulation of the differentiation of your firm - why the LP should back you for the next few DECADES (VC funds have a LONG time constant), why what you are doing is good from a value-add and financial perspective, and finally, why you are the best team to do this - is quintessential in this outreach. Articulating the combination of the chosen areas of investments, macro-economic forces, evolving technologies, and your team is vital to demonstrating your fund's potential.

Remember, the goal of an outreach email is not just to secure investment (you cannot solicit an investment), but to start building a relationship with potential investors. It is about laying the groundwork for relationships that could flourish for years to come.

Most importantly, in the words of Pitbull, “Ask for money, get advice. Ask for advice, get money twice”.