2019 Venture Limited Partner survey
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This document summarizes the results of a 2019 survey of limited partners (LPs) that invest in venture capital funds. Some key findings include: - Single family offices and funds of funds made up the majority (66%) of survey respondents. - Most LPs preferred committing under $5 million, with smaller funds and co-investments appealing more to non-institutional LPs. - LPs expected to increase their allocations to both VC overall and emerging managers in 2019 compared to 2018. - Thematic funds saw increased preference compared to generalist funds among LPs. - Transparency, valuation issues, and strategy drift were the top frustrations cited by LPs. - Overall confidence in
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2019 Venture Limited Partner survey
- 1. Hana Yang Senior Director, Emerging VC First Republic Bank What Does the Data Say: LPs
- 2. FRB’s Commitment to Venture Capital 500+ Total Venture Capital Firms Banked 300+ Emerging Venture Capital Firms Banked
- 3. RAISE LP Survey Results 41% 25% 13% 12% 6% 2% 66% Single Family Office Fund of Funds Foundation / Endowment PensionRIA Other Other: Family Trusts, Corporate Advisers Surveyed Fund Investors SOURCE(S): 2019 RAISE LP SURVEY
- 4. Target Commitment Attracts Different Types of LPs SOURCE(S): 2019 RAISE LP SURVEY 56% 12% 17% 37% 16% 17% 38% 50% 5% 32% 25% 31% 17% 2% 40% 58% 100% 31% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Under $1M $1M - $5M $5M - $10M Over $10M Distribution of Commitments Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other
- 5. Average Institutional LP Backing (% of commitments) 33% 47% 50% Fund I Fund II Fund III SOURCE(S): 2019 RAISE LP SURVEY
- 6. Non-Institutional LPs Prefer Smaller Size Funds (w/co-invest) 73% 15% 12% Smaller funds (Co-investments/SPVs) Larger funds No difference Larger Funds No Difference SOURCE(S): 2019 RAISE LP SURVEY Smaller Funds ($100 million or less)
- 7. LP average expected new allocations to VC (all types of VC) 2.8 4.8 2.7 0.0 3.0 2.82.8 8.0 1.6 2.0 2.7 2.7 0 1 2 3 4 5 6 7 8 9 2018 2019 Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other SOURCE(S): 2019 RAISE LP SURVEY +40% Average number of VCs added to LP portfolio
- 8. LP average expected new allocations to Emerging Managers 2.1 3.0 1.8 2.2 2.6 2.2 4.2 1.6 2.0 2.1 3.0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2018 2019 SOURCE(S): 2019 RAISE LP SURVEY 0.0 +40% LPs Emerging Managers Allocations Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other
- 9. Most Active LPs in Emerging Managers/Micro VC Funds Investor Type Number of Funds Grantham Foundation Foundation 9 New York State Common Retirement Fund Public Pension Fund 9 Cendana Capital Private Equity Fund of Funds Manager 8 Industry Ventures Private Equity Fund of Funds Manager 8 Kapor Center for Social Impact Foundation 8 Commonwealth Financing Authority of Pennsylvania Government Agency 7 Prudential Financial Insurance Company 7 Sobrato Family Holdings Family Office - Single 7 Goldhirsh Foundation Foundation 6 Naver Corporate Investor 6 TIFF Private Equity Fund of Funds Manager 6 University of Texas Investment Management Company Endowment Plan 6 As Of Q1 2019
- 10. Fund Type Preferences - Thematic vs. Generalist SOURCE(S): 2019 RAISE LP SURVEY 53% 18% 29%30% 40% 30% Thematic Generalist No difference Thematic vs. Generalist Fund Preference (Aggregate) 2018 2019 53% 18% 29% 37% 34% 29% Thematic Fund Generalist No difference Non-Institutional LPs Preference for Thematic vs. Generalist Funds 2018 2019 +22% +16% -23% -16%
- 11. Fund Geography Preferences SOURCE(S): 2019 RAISE LP SURVEY 12% 22% 25% 20% 2018 2019 2018 2019 Non-Institutional Institutional Geographically focused. No difference +10% -5%
- 12. 6% 53% 41% 10% 41% 49% Non-Institutional LPs Preference 2018 2019 Single GP Multiple GPs No Difference Partnership Type Preferences SOURCE(S): 2019 RAISE LP SURVEY -12% +4% -12% +8% +12% 18% 41% 41% 6% 53% 41% Single vs. Multiple GP Preference (Aggregate) 2018 2019 Single GP Multiple GPs No Difference
- 13. LPs Due Diligence Duration from First Meeting SOURCE(S): 2019 RAISE LP SURVEY 21% 46% 20% 12% 82% 64% 58% 38% 10% 14% 17% 62% 8% 21% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Duration of Due Diligence - Details <= 6 months 6 - 12 months 12 months + Duration of Due Diligence (aggregate) 3 months 3-6 months 6-12 months 12+ months Single Family Office Fund of Funds Foundation/ Endowment RIA
- 14. Top LP Frustrations 7% 8% 9% 12% 12% 14% 18% 20% Other Management fees Long investment hold times Investment valuations Team turnover Transparency Carried interest above 20% Strategy drift For 2018 the top 3 LP frustrations were: 1. Premium fees 2. Investment valuation 3. Transparency, and strategy drift SOURCE(S): 2019 RAISE LP SURVEY
- 15. Venture Capital Confidence Index SOURCE(S): 2019 RAISE LP SURVEY 7.2 6.0 6.0 5.7 5.5 5.3 0 1 2 3 4 5 6 7 8 Overall Average CI: 5.9 Average Confidence Index Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other
- 16. How Important is Liquidity? SOURCE(S): 2019 RAISE LP SURVEY 2018 2019 -9% 84% 75% % of LPs Who Think GPs Should Pursue Secondary Transactions
Editor's Notes
- Ben Excited LPs think? Get to LP data in a sec Thanks Ben, very excited to be here! So, who wants to know what LPs think? Get to LP data in a sec
- EM + MicroVC important practice Best VCs of tomorrow Already work with you Thank you 400 fundraises Share LP data Second year Raise LP survey Every year gets better 100 respondents = 2x So, let’s get into the LP data already! Emerging Managers and Micro-VC is a very important part our practice at FRB We believe that the best VCs of tomorrow are the emerging managers of today We already work with many of you in this room - thank you for your support Our team has gone through over 400 fundraises with emerging managers And I’d like to share the LP data from the survey This is the second year we ran the Raise LP survey Every year gets better – we had 100 respondents this time, which is 2x last year! So, let’s get into the LP data already!
- Majority of respondents Not surprising Family offices check sizes Fund of funds What does the data say? Vast majority of respondents were family offices and fund of funds Not surprising Family offices check sizes are most in line with emerging managers and micro VC Fund of funds typically have active mandates to invest to VC
- Overwhelming Breakdown by LP type Average Fund I (cite it – FRB 100 EM) As expected, the main source capital Foundations and pensions RIAs I know this slide can be a bit overwhelming But here’s a breakdown of average commitments by LP type The average fund size for a Fund I is $33M – from a survey we conducted at FRB with 100 emerging managers earlier this year As we expected, the main source of capital is family office and fund of funds Foundations and pensions are typically 10% to 20% of a fund So funds over $100M would be best fits And RIAs come in different sizes so commitments are pretty diverse too
- 1/3 capital Scales up Exception we observed Spin out managers Often well north of 50% About 1/3 of capital is institutional for fund I’s Scales to 50% by fund III The exception we observed is that spin out managers from bigger platforms have a higher percentage of institutional capital Often well north of 50%
- For non-inst., vast majority Why is that? Ability to co-invest / pro-rata Conversations with LPs For non-institutional LPs, we found that the vast majority ~75% preferred smaller funds Why is that? Because of their ability to co-invest in future financing rounds through pro-rata In fact, the main selling point for micro-VCs for LPs is the ability to coinvest Probably many of you have experienced these conversations with LPs
- New additions of ALL VC Fund of funds active Skewed data / remove outlier Far more family offices 10,000+ according to Important thing to highlight is that these are new additions of ALL VC types to portfolio Fund of funds appear to be most active on average Skewed data given an outlier If we were to remove this outlier from sample set, the number actually looks more similar to 2018 – an average of 4.2 for 2019 However, it’s important to note that there are far more family offices in both the survey sample set and globally 10,000+ according to the global family office report
- More interesting data Most active Surprising Anecdotally / made bets / selectively However, positive sign Family offices more active With emerging managers / alpha Now this is probably the more interesting data for this audience Again, fund of funds appear to be most active Which is surprising to us, in general and anecdotally we hear that fund of funds already made their bets and re-upping w/existing managers and only selectively adding new names However, this is a very positive sign and encouraging Family offices have become more active within emerging managers space given their check sizes, but also because they don’t have access top tier legacy firms With emerging managers they have the best shot at alpha returns
- Preqin LPs who’ve allocated Interesting / roster According to Preqin, here’s a list of LPs who were active in 2018 It’ll be interesting to see what this roster looks like for this year
- Who’s active LP preferences Let’s start Decrease year over year Higher interest Last year 20 AI funds, 2 this year Not sure We’ve heard narrow scope / competitive advantage Ok we know who’s active Now let’s look at LP preferences starting with thematic vs. generalist fund types Pronounced decrease in preference for thematic funds year over year And higher interest in generalist funds Last year 20 AI funds, this year only 2 Not sure what’s exactly driving this We’ve heard that it might be LP’s perception that thematic funds have too narrow of a scope or lack competitive advantage within that theme
- Similar to last year No strong Non-institutional LPs preference doubled Lower valuations / less noisy Similar to last year, there is no strong preference for geographically focused funds However, non-institutional LPs preference has nearly doubled Might be due to lower valuations and less noisy environments outside of the valley
- Majority continue to prefer However, solo GP Non-institutional LPs no preference The majority of LPs continue to prefer multiple GPs partnerships However, if you’re a solo GP, I wouldn't be overly concerned here Nearly 60% of non-institutional LPs expressed that they have no preference or had a preference towards single GP
- Reinforce family offices Surprising Our experience, longest sales cycles We hear / like pre-existing Anecdotally, 1 year Data based on LPs pre-existing This slides reinforces that family offices are indeed the fastest movers Surprising to see fund of funds at 64% and foundations at 58% Our experience is that institutional LPs have the longest sales cycles We heard that they like pre-existing relationships Anecdotally, they like to get to know a manager at least for 1 year before considering allocating So the data here might be based on LPs with pre-existing relationships with managers before spinning out
- Much of the same as last year Strategy drift, Premium fees and lack of transparency remain top frustrations for LPs
- For venture capital, scale Market uncertainties High valuations Bullish and optimistic Strong year Here’s what the confidence index looks like currently for venture capital Might be because of uncertainties around the market, fear of high valuations However, fund of funds are most bullish and optimistic And we also expect a strong year from both a fundraising and liquidity standpoint
- On that note, to conclude Starting to see M&A / IPO – 12-18 mo But, staying private Extending liquidity cycles As a result, LPs focus on / encourage Good news! More GP data from Joanna Hopefully you found the data useful If you want to discuss in detail, reach out to myself Hana Yang and team We’ll be here throughout the conference Thank you! On that note, and to conclude, we’re starting to see more M&A and IPO activity in the last 12-18 months But, companies are still staying private longer Thus extending liquidity cycles As a result, LPs continue to focus on and encourage GPs to take opportunities for liquidity via secondary transactions Good news! You’ll hear more about this from the GP data from Joanna