A large LP database is a powerful tool for proactive due diligence on your potential LPs. Before reaching out to LPs and pitching, use data to answer key questions about an LP’s history, mandates and processes to ensure you are targeting the right investors and tailoring your approach effectively.
How can VCs use a database for LP due diligence?
Fundraising is a two-way street. VCs should conduct their own due diligence before they spend months chasing an LP. A comprehensive database can answer critical questions that determine whether an LP is a good fit for your fund.
Seven key questions your LP database should answer:
- What is their history with first-time funds? This is the most important qualifying question for an emerging manager. A database can instantly reveal if an LP has a track record of backing new teams, or if they exclusively invest in established brands.
- Do they have a mandate for my specific sector and stage? An LP might be active in venture, but do they invest in Deep Tech, or only SaaS? Do they invest at Seed, or only Series B? Data can confirm alignment and avoid wasted time.
- What is their typical cheque size for a fund of my size? Pitching an LP who writes £20m cheques for a £30m fund is a poor fit. A database can show their past commitments relative to fund sizes, allowing you to target LPs who write cheques that are appropriate for your target raise.
- Who are their existing GP relationships? Knowing which other funds an LP has backed is crucial. It can reveal potential portfolio conflicts, but also identify opportunities for warm introductions from a GP they already trust.
- What is their typical decision-making timeline? A database that tracks fundraising processes can reveal if an LP is known for making quick decisions or for running a slow, bureaucratic process. This helps you manage your pipeline and timeline.
- Are they likely to be overallocated right now? Analysing the timing of their recent fund commitments can help you infer whether an LP is likely to be at the end of a deployment cycle and may have limited capacity for new investments.
- Who is the right person to contact? It is difficult to find the right contact. A good database can identify the specific individual on the investment team who covers your fund’s strategy and geography.