7 Questions LPs Should Ask VCs (But Don’t)

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bumped off the deal docket, but the marquee partner and team member got a nice feather in the form of sexy new startup and an uptick in personal brand.

There is a new innovation in board participation.

Using board of director and board of advisor seats to do lead gen essentially increases the probability of buying stock at the best companies. This maneuver adds you to the waitlist to buy stock in future fundraising rounds. It also allows a long look into the company. As GP, you and your partners should informally head up subcommittees with a specific purpose that builds shareholder value.

If the last formal training your GPs got was a half-day seminar at Kauffman’s Center for Venture Education back when they were associates…maybe you should spend some of that management fee and train your staff in Board of Director 2.0 stuff.

4. How are you planning to get your own presentation day at Y Combinator?

Sequoia gets their own presentation day at YC.

Kleiner Perkins gets their own presentation day at YC.

A presentation day allows for your firm to get a nice long look way before the 80 other venture firms. If the YC startup you love loves you back, you can have them pulled from Demo Day and just fund them without a bidding war. Buy some deal flow insurance and send all available partners to Demo Day anyway.

5. How are you formalizing sidecar, portfolio founder funds?

No one really knows what a sidecar fund is.

Sidecar funds are little funds with complex structures and more complex tax implications. Funds have founders bird-dogging new startups. By bird-dogging I mean lead generating new founders. Sidecar funds are meant to share the upside of the VC investment with the founder that brought in the new deal.

First Round Capital has a risk pool where your startup owns a little stock in the rest of the portfolio companies. Formalizing sidecar funds might be worth examining, clarifying and formalizing. Sidecar funds do not have to have exactly the same fee structure as the parent fund. Sidecar funds can differ from the 2/20 structure in that it can be 0/20. (2/20 means 2 percent management fee and 20 percent carry. Management fee is percentage of total fund. Carry is percentage of the gain that is kept by the VC.)

I like the concept of paying founders to do lead gen using a 0/0 side-car fund. The founder brings you deals and they do not get paid. Their reward is attendance at an industry conference which doubles as a mini vacation but is a clear business expense.

6. Do you ever eat at dorm cafeterias?

Jesus mentored his 12 co-board members by eating with them. A lot.

Eating at Stern Cafeteria on Stanford’s campus is demeaning, so let’s at least see if you as the GP can have partners willing to crash the dorm at 5:00 pm and … Next Page »

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Larry Chiang is CEO of Duck9 and teaches Engineering 145 as a Stanford Entrepreneur in Residence. He has a fund called "Larry Chiang Stanford G51 Fund of Stanford Founders." Follow @

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12 responses to “7 Questions LPs Should Ask VCs (But Don’t)”

  1. Peter Mullen says:

    Dude, why are you giving up all your secrets for success in a public forum? This is great stuff. I’ve long advocated the event circuit (and I guess now you can add the cafeteria circuit) as the absolute best means, not just for lead gen (I’m in sales/bus dev) but to initiate and foster long term trusted relationships with entrepreneurs and those who love them. Not many people get this. Thanks for the post.