How a Venture Fund (Ours!) Actually Works With Their LPAC
“Be great at the job and proud of how you’re doing it.” That was our rallying cry at the beginning of Homebrew. We figured that if we enjoyed it, but weren’t financially successful, we couldn’t do it for the rest of our careers. And if we made money, but weren’t happy with the work, we wouldn’t do it for the rest of our careers. So why not focus on both. This extended to how we pitched LPs as well, aiming for a very concentrated base of institutional investors. We figured that given their commitment to the asset class, so long as we did our job well and treated them like partners in our business, they would show up each fund to back us.
Years later Satya and I also started Screendoor alongside Homebrew. If Homebrew’s goals were to back exceptional founders building companies then you can think of Screendoor as backing exceptional founders building new venture firms. We’re now four years in, having invested in almost two dozen VCs, which by the way, if you’re raising a fund, let us know. Whereas Homebrew was always meant to be just the two of us, Screendoor is more expansive and now has a team of three running the show.
One of the folks, Lisa Cawley (Screendoor’s Managing Director), recently published a blog post called “ Work with your LPAC, not for your LPAC,” which got me thinking about Homebrew’s LPAC (Limited Partner Advisory Committee). Ours has always been small — just like our LP base in general — and we’ve worked with them in ways that are spelled out in our LPA (Limited Partnership Agreement) but also used them for advice, as the name suggests. Lisa’s post — and more coming — goes into depth about what an LPAC is and how it can be helpful for a VC, especially a new firm. To make it really tangible, here are examples of why we’ve gone to our LPAC over the 12+ years of Homebrew.
Standard Asks/Approvals
- Extensions on fund length as needed — everyone knows it’s taking longer to get liquid. No reason to sell winners prematurely just because of original fund length, especially given our LPs are largely cash-on-cash return focused more than IRR.
- Exceeding our limits on company concentration and recycling — we are aggressive in using early liquidity to get more turns on the dollars rather than distribute. We’ve hit 120%+ recycled in most of our funds, and have gone beyond our 10% concentration limit (per the LPA) in at least four investments.
- Investing in a startup across funds — while we generally don’t want to do this (for various reasons), there was an occasion or two where it made sense.
Situation Specific Guidance We’ve Asked About
- Taking early partial liquidity — Big believers in smart portfolio management and that for true seed funds, taking secondary liquidity is an important tool to be used. While this is now becoming more common, when we started exploring these opportunities it was a little more contrarian, or at least, not talked about publicly. We asked our LPAC about what frameworks they’ve seen across their venture portfolios. Not surprisingly there’s no one approach — some of their managers never sell ‘early’ while others had a rule of thumb to try and pull 1x the fund out of their ‘unicorns’ at each growth fundraise. Most encouraging was hearing from our LPAC that we should never feel pressure to sell prematurely just to create DPI ahead of larger gains. And that they trust our judgment since we knew more about the companies than they did. So nice to have longterm partners like that.
- Living our values — A while back we encountered a situation where we felt that, despite our best attempts to provide an alternative, a portfolio company was making a decision that challenged our values. We sought some advice from other VC friends but ultimately wanted to do something no one recommended: sell our shares back to the company at our cost, despite an in-process financing occurring at a higher valuation. We shared this decision with our LPAC and again, received nothing but support from the LPs.
Most of these have been ad hoc emails or phone calls, but we make sure to get our LPAC together each year as part of our AGM, usually in an informal lunch or discussion prior to the main presentation. They’ve been invaluable and we feel really fortunate to have a relationship that’s professionally oriented but also supported by care and personal affinity.
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Originally published at https://hunterwalk.com on March 17, 2025.
