In this episode of the 20 minutes VC, host Terry Stebings chats with Beezer Clarkson of Sapphire Ventures about the often-overlooked process of venture capitalists (VCs) fundraising from limited partners (LPs). Clarkson, with a rich background at DFJ's global network and Omidyar Network, discusses her journey to becoming an LP, the importance of LPs in the venture ecosystem, and the intricacies of LP investment decisions. She highlights the need for VCs to articulate their unique value proposition to LPs and the competitive nature of securing investments from prominent LPs. The conversation also delves into portfolio construction, the dynamics of the fundraising process, and the emerging trend of LPs establishing a brand presence in the industry. Clarkson emphasizes consistent investment over time and openness to new funds as traits of successful LPs, while also mentioning Sapphire Ventures' targeted approach to investing in early-stage firms in specific geographies.
"So where do they get their money from? And that's where the mysterious world of LPs come into it."
This quote introduces the central topic of the podcast, which is the source of funding for VCs and the role LPs play in the venture capital ecosystem.
"I came at it in a probably slightly serpentine path, but driven by a love for technology and coming from the directing side, the direct investing side, actually."
This quote explains Beezer Clarkson's non-linear career path to becoming an LP, highlighting her diverse experiences and passion for technology.
"That's where I started my first entree into being an LP and fell in love with that side of the world, and then followed that passion to DFJ."
Beezer Clarkson's quote explains her transition to focusing exclusively on LP work, which was motivated by her passion and interest in how capital is leveraged within firms.
"Reconfirm for me that innovation does occur everywhere... married with how really very, quite hard it is to build and run a venture firm itself."
This quote reflects Beezer Clarkson's realization that innovation is not geographically constrained and that managing a venture firm is a complex endeavor.
"Yes, I think there are probably more similarities than dissimilarities."
The quote by Beezer Clarkson draws a parallel between the processes LPs and VCs use to select their investments, emphasizing the strategic and methodical nature of both roles.## Fund Manager Sourcing
"We spend a fair bit of time traveling because we want to understand and see what the entrepreneurs and vcs are seeing."
This quote highlights the importance of firsthand experience and observation in identifying potential investment opportunities and building a network for sourcing.
"I wouldn't say we're agnostic. We are targeted the US, Europe and Israel."
Beezer Clarkson clarifies that while Sapphire does invest in multiple geographies, they have specific target areas and are not indiscriminate in their geographic focus.
"There is inevitably changes in an LP base over time, because the world just changes and opportunities come up and it's about trying to be there when the opportunity presents itself."
Beezer Clarkson emphasizes the dynamic nature of LP bases and the importance of being ready to seize opportunities as they arise.
"You really hope that you don't wake up one day and say, oh my gosh, it's been two years and all of a sudden the fund's gone."
Beezer Clarkson underlines the expectation that LPs should be kept informed about the rate at which a fund is being invested to avoid surprises and allow for proper portfolio management.
"There is usually a deck, there is usually a discussion of who you are, why you are, what the ultimate goals are, which are pretty similar amongst funds, but how they go about it is different."
Beezer Clarkson describes the typical elements of a GP's pitch, highlighting the importance of a clear presentation of the fund's identity and strategy.
"I always want to know why you. Because for me that captures the have you thought about who you are as an investor, what you want to invest in, and why the entrepreneur is going to pick you versus all the other sources of capital that are available in the market."
Beezer Clarkson stresses the need for GPs to have a well-defined sense of their investment identity and to communicate this effectively to potential LPs.## Investment Decision-Making Process at Sapphire
"Typically an LP will have a team that does the diligence, the referencing, the sourcing, and then there is an investment committee." This quote outlines the general structure of how LPs operate when making investment decisions, highlighting the roles of the team and the investment committee.
"One is a commitment to the asset class over time... It's also being open to the new and the different." This quote emphasizes the importance of consistent investment over time and being receptive to both new and established fund managers as a hallmark of successful LPs.
"We got to sit down and say, what does it mean to be an LP? What does it mean to be a great LP? What are the qualities? What are the attributes?" This quote describes how Sapphire Ventures took a foundational approach to establish their identity and philosophy as an LP.
"We think about branding because we're newer and we want to make sure that our name is known for this..." This quote highlights the importance of branding for newer LPs in order to establish their presence and reputation in the market.
"In the first quarter of a year, over 50 funds raised something to the tune of eleven, $12 billion..." This quote provides insight into the fundraising climate of 2016, highlighting the success of established funds in attracting capital.
"The stock market was wobbly, to say the least, in the beginning of the year, which causes its own dynamic in the industry." This quote reflects on how market instability can affect investment strategies and the timing of fundraising efforts.
"One of my favorite books is actually by a British author named Joan Aiken and it's called the tale of the one way street." This quote shares a personal literary preference of Beezer Clarkson, providing insight into influences that may shape their perspective.## Entrepreneurial Mindset
then one day, being the entrepreneur that he is, he turns around and walks the wrong way on the one way street and the world explodes into this kaleidoscope of colors and possibility. And there's pink cats and red horses. And you can do everything he was told. You can only do one way. You could do a million ways.
This quote illustrates the transformative power of entrepreneurial thinking, which can lead to seeing the world in new and diverse ways.
Openlp kind of gets at what you were talking about with the marketing and branding around the lps, because what was happening for us over the last year, plus is that we were getting a huge number of questions about what is an LP, the reason why you're doing this podcast, who are they? Where are they? What do they do? What do they say?
Beezer Clarkson explains the motivation behind OpenLP, which is to provide clarity and information about LPs to the broader community.
I read a lot, so I don't know if I could say just one, but I would say my typical morning involves reading everything from term sheets, strictly VC, pE hub information, full ratchet, the skim, trusted insight techieu.
Beezer Clarkson describes her extensive morning reading routine, which helps her stay knowledgeable about the venture capital sector.
Oh, easily saying no. And I'm sure this is a pain point, that GPS experience too. The lps have to say no a lot, just like GPS, and it's never any fun.
This quote acknowledges the difficulty of rejecting investment opportunities, a common challenge for both LPs and General Partners (GPs).
Sorry, the most recent investment decision we made is to a fund that sits smack in our sweet spot. So it's a Bay Area based series, a fund. It's sub 200 million.
Beezer Clarkson explains the reasoning behind their most recent investment, highlighting their strategic focus and due diligence process.
And again, I'd like to give a huge hand to Beza for coming on the show today. And I want to say a huge thank you for all she's done for me in terms of guidance, support and introduction.
Terry Stebings expresses gratitude to Beezer Clarkson for her contributions and guidance, highlighting her positive impact on individuals in the venture capital community.