The Full Ratchet (TFR): Venture Capital and Startup Investing Demystified

Beezer Clarkson of Sapphire Ventures joins Nick on a special Crisis Coverage installment to discuss Platform LP; Allocations in a Down-Market; COVID Strategy Drift; and Emerging Manager Selection. In this episode, we cover:

  • Background and path to Sapphire?
  • Overview of the thesis at Sapphire?
  • You have relationships with many different funds and fund managers, how have you been managing the current situation from the LP side?
  • Down years tend to be very good times to invest, what portion of institutional LPs do you think will view the current situation as an opportunity to deploy versus those that tighten up?
  • Strategy drift of a venture firm can be concerning. COVID has impacted some strategies more adversely than others -- what have you seen as far as shifts in theses and deployment strategies among firms and what's your opinion on GPs changing course due to COVID/SIP?
  • Changing gears a little bit, but I want to talk about OpenLP. What is OpenLP and why'd you launch it?
  • There was a good article recently published by Kauffman Fellows talking about the relationship between LPs and micro-vcs and emerging fund managers. It mentions that most institutional LPs won’t invest in emerging managers until they see them produce cash-on-cash returns, but at that point, they’re no longer an emerging manager. What do you need to see from emerging fund managers to consider investing in their subsequent funds?
  • As far as skills are concerned, which skills do you often see emerging fund managers have aside from having access to great deals, making good investment decisions and providing value to founders?
  • Have there been any novel ways that you've seen smaller firms differentiate themselves that you can mention? Any other areas where you'd like to see more focus?
  • Let's say you're looking at an emerging fund manager's existing LP-base -- what, if any, are the red flags or things that might give you pause?
  • I know you place significant emphasis on the human aspect of working with people, how do you assess whether or not a fund manager has the people skills that you require when deciding whether or not to invest into their venture fund?
  • How can a fund manager determine whether an LP has real interest vs. just being a tire kicker?
  • You are approached to invest in a Emerging VC Firm. Their last fund is currently at 35% IRR 1.3 TVPI and is 2018 vintage.
    • Catch is you can only ask 3 questions (for 3 additional data points) to make your decision.
    • What 3 question do you ask? Granted this is not how investing works! ; )
  • Any advice for fund managers that are early in the career, planning a fundraise within the next 12 months?

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