Power

LPs make most of the money from VC funds. So who are they?

"We live in Overshare City, right?" VCs are getting more comfortable with disclosing their limited partners — the real money behind their funds.

​Susan and Anne Wojcicki

Susan and Anne Wojcicki are tech executives — and investors in venture capital funds.

Photo: Drew Angerer/Getty Images

When Katie Jacobs Stanton and Alex Roetter unveiled their firm Moxxie Ventures' second fund, they weren't the only names attached to the announcement. Instead, the VCs made a deliberate decision to also disclose the people who had invested in the fund itself: big names like Anne and Susan Wojcicki, Laurene Powell Jobs' Emerson Collective and Goldman Sachs Asset Management.

"As both of us transitioned into the VC world, we're somewhat surprised with how opaque many things are, including the sources of capital," said Roetter, the former Twitter exec and Kitty Hawk president who joined Moxxie as a general partner of its second fund. "We just thought it was a no-brainer to report on something if you say it's important to you."

Venture capitalists have long kept the names of their backers a tightly guarded secret. Some of that came at the insistence of limited partners, or LPs, who are the ones providing the firms the cash they need to invest. Sometimes it's the firms that prefer not to disclose, lest their valuable backer base be swiped by a competing fund.

But in a push for transparency, more venture funds are starting to disclose the makeup of their LP base, and even who some of the individual investors are. Base10 Capital's new $250 million fund highlighted LPs like Florida A&M, the MacArthur Foundation and Plexo Capital. Sequoia Capital advertises that the majority of its funding comes from nonprofits and schools, and includes on its website a list of LPs like the Ford Foundation, MIT, the Smithsonian Institution and Boston Children's Hospital.

A16z founder Marc Andreessen is now known for backing small microfunds as part of his deal strategy. When former a16z crypto investor Jesse Walden announced his new fund, Variant, he told CoinDesk that Andreessen and a16z crypto-fund lead Chris Dixon had backed the fund, signaling his former employer's support.

"There's always been a little bit of attention because I think firms always want to pound their chests on the 'quality' of their investor base," said Ahoy Capital founder Chris Douvos, who is known for his Super LP blog. "For a fund to get an investment from a place like Princeton or Yale or Stanford, it's a real feather in their cap, and those investors tend to be bell cows and a lot of investors will see that as almost a Good Housekeeping seal of approval."

Still, disclosure of fund LPs has been rare. In the early 2000s, Sequoia famously kicked out some of its investors because they were public institutions that had to disclose their return rates through FOIA disclosures. Since then, many firms have kept their investor base under wraps, Douvos said. There's also some firm politics involved. Douvos said some firms prefer to keep LPs in the dark about who the other backers are so that they can play them off each other to pass governance changes.

LPs have their own incentives for keeping their name out of the lights. If a firm announces who some of their LPs are, those investors are often hit up by other funds who are looking for backing. It can be annoying to get the emails, and worse for the GPs, if there is a similar fund with better returns, it leaves a fund's LP base vulnerable to poaching.

"The LP world is kind of very secretive, very opaque, keeping cards close to the chest," Douvos said. "And I think that's changed as well as LPs have made themselves, both as institutions and individuals, kind of eager to trumpet their position in funds that are perceived to be hot."

LPs are also taking a larger part in the conversation, thanks to efforts like OpenLP. So much of public discussion about VC — on Twitter, in blog posts, on podcasts — fixates on the relationships between the VCs and the entrepreneurs. What gets left out: the quiet chats between the GPs and the LPs. OpenLP is trying to lift some of the secrecy by centralizing LP content in one place, and bring LPs into the conversation, said Beezer Clarkson, partner at Sapphire Ventures.

"The industry seemed to be established with, as a norm, that the LPs weren't public," Clarkson said. "There wasn't anywhere near as much perspective on the LP, so we launched OpenLP."

Driving the disclosures is also a push for increased diversity of LPs, since they're the ones receiving the majority of the returns from an investment. There are very few data sources that track the makeup of LPs in the venture industry, and it can be complicated to track given much of the money is going to institutions rather than individuals.

When Seven Seven Six went out to raise its debut fund, it set a target of 50% women and 15% Black and indigenous people among its LPs. It was "very hard but worth doing," founder Alexis Ohanian said in a tweet. The firm promised to release a report on its LP recruiting strategy, but it declined to name individual investors in the fund when asked by Protocol.

For Moxxie's Roetter, it was important to the firm to focus on the "giant and increasing wealth disparity in this country" and bring in diverse limited partners to benefit. The firm ended up with 46% women LPs, who represent 68% of the capital, and 18% BIPOC LPs.

"There's so many LPs out there, and they always have very nondescript, generic names, and it's hard to know who [they are] ... or where the money comes from," Roetter said. Some, like university endowments and nonprofit foundations, are obvious, but finding LPs is still heavily reliant on existing networks. Disclosing who some of the LPs are could help new funds identify capital sources and bring in more people into the venture ecosystem.

But the disclosures could also end up having the opposite of intended effect, and reinforce the haves and have-nots in the venture space, warned Douvos.

"I think that there's a possibility that transparency will increase the have and have-not dynamics, in that most LPs are actually less diligent than they should be and just chase hot brand names and look for signals and seals of approval of a handful of bell cow LPs," Douvos said. "This lemming-like behavior will only increase if it becomes more obvious who the bell cows are backing."

Of course, that can only happen if it becomes the norm to be public about it. The information about a fund's LP base (both in terms of backers' identity and diversity) is slowly, but surely, trickling out.

"In the past 20 years, we've gone from firms being really sensitive about their information being out there to people pounding their chests. We live in Overshare City, right?" Douvos said. "So share all the information you want, as long as it's good."

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