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2019 Venture Limited Partner survey

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2019 Venture Limited Partner survey

  1. 1. Hana Yang Senior Director, Emerging VC First Republic Bank What Does the Data Say: LPs
  2. 2. FRB’s Commitment to Venture Capital 500+ Total Venture Capital Firms Banked 300+ Emerging Venture Capital Firms Banked
  3. 3. RAISE LP Survey Results 41% 25% 13% 12% 6% 2% 66% Single Family Office Fund of Funds Foundation / Endowment PensionRIA Other Other: Family Trusts, Corporate Advisers Surveyed Fund Investors SOURCE(S): 2019 RAISE LP SURVEY
  4. 4. Target Commitment Attracts Different Types of LPs SOURCE(S): 2019 RAISE LP SURVEY 56% 12% 17% 37% 16% 17% 38% 50% 5% 32% 25% 31% 17% 2% 40% 58% 100% 31% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Under $1M $1M - $5M $5M - $10M Over $10M Distribution of Commitments Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other
  5. 5. Average Institutional LP Backing (% of commitments) 33% 47% 50% Fund I Fund II Fund III SOURCE(S): 2019 RAISE LP SURVEY
  6. 6. Non-Institutional LPs Prefer Smaller Size Funds (w/co-invest) 73% 15% 12% Smaller funds (Co-investments/SPVs) Larger funds No difference Larger Funds No Difference SOURCE(S): 2019 RAISE LP SURVEY Smaller Funds ($100 million or less)
  7. 7. LP average expected new allocations to VC (all types of VC) 2.8 4.8 2.7 0.0 3.0 2.82.8 8.0 1.6 2.0 2.7 2.7 0 1 2 3 4 5 6 7 8 9 2018 2019 Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other SOURCE(S): 2019 RAISE LP SURVEY +40% Average number of VCs added to LP portfolio
  8. 8. LP average expected new allocations to Emerging Managers 2.1 3.0 1.8 2.2 2.6 2.2 4.2 1.6 2.0 2.1 3.0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2018 2019 SOURCE(S): 2019 RAISE LP SURVEY 0.0 +40% LPs Emerging Managers Allocations Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other
  9. 9. Most Active LPs in Emerging Managers/Micro VC Funds Investor Type Number of Funds Grantham Foundation Foundation 9 New York State Common Retirement Fund Public Pension Fund 9 Cendana Capital Private Equity Fund of Funds Manager 8 Industry Ventures Private Equity Fund of Funds Manager 8 Kapor Center for Social Impact Foundation 8 Commonwealth Financing Authority of Pennsylvania Government Agency 7 Prudential Financial Insurance Company 7 Sobrato Family Holdings Family Office - Single 7 Goldhirsh Foundation Foundation 6 Naver Corporate Investor 6 TIFF Private Equity Fund of Funds Manager 6 University of Texas Investment Management Company Endowment Plan 6 As Of Q1 2019
  10. 10. Fund Type Preferences - Thematic vs. Generalist SOURCE(S): 2019 RAISE LP SURVEY 53% 18% 29%30% 40% 30% Thematic Generalist No difference Thematic vs. Generalist Fund Preference (Aggregate) 2018 2019 53% 18% 29% 37% 34% 29% Thematic Fund Generalist No difference Non-Institutional LPs Preference for Thematic vs. Generalist Funds 2018 2019 +22% +16% -23% -16%
  11. 11. Fund Geography Preferences SOURCE(S): 2019 RAISE LP SURVEY 12% 22% 25% 20% 2018 2019 2018 2019 Non-Institutional Institutional Geographically focused. No difference +10% -5%
  12. 12. 6% 53% 41% 10% 41% 49% Non-Institutional LPs Preference 2018 2019 Single GP Multiple GPs No Difference Partnership Type Preferences SOURCE(S): 2019 RAISE LP SURVEY -12% +4% -12% +8% +12% 18% 41% 41% 6% 53% 41% Single vs. Multiple GP Preference (Aggregate) 2018 2019 Single GP Multiple GPs No Difference
  13. 13. LPs Due Diligence Duration from First Meeting SOURCE(S): 2019 RAISE LP SURVEY 21% 46% 20% 12% 82% 64% 58% 38% 10% 14% 17% 62% 8% 21% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Duration of Due Diligence - Details <= 6 months 6 - 12 months 12 months + Duration of Due Diligence (aggregate) 3 months 3-6 months 6-12 months 12+ months Single Family Office Fund of Funds Foundation/ Endowment RIA
  14. 14. Top LP Frustrations 7% 8% 9% 12% 12% 14% 18% 20% Other Management fees Long investment hold times Investment valuations Team turnover Transparency Carried interest above 20% Strategy drift For 2018 the top 3 LP frustrations were: 1. Premium fees 2. Investment valuation 3. Transparency, and strategy drift SOURCE(S): 2019 RAISE LP SURVEY
  15. 15. Venture Capital Confidence Index SOURCE(S): 2019 RAISE LP SURVEY 7.2 6.0 6.0 5.7 5.5 5.3 0 1 2 3 4 5 6 7 8 Overall Average CI: 5.9 Average Confidence Index Single Family Office Fund of Funds Foundation / Endowment Pension RIA Other
  16. 16. How Important is Liquidity? SOURCE(S): 2019 RAISE LP SURVEY 2018 2019 -9% 84% 75% % of LPs Who Think GPs Should Pursue Secondary Transactions

Notas del editor

  • Ben
    Excited
    LPs think?
    Get to LP data in a sec


    Thanks Ben, very excited to be here!
    So, who wants to know what LPs think?
    Get to LP data in a sec
  • EM + MicroVC important practice
    Best VCs of tomorrow
    Already work with you
    Thank you

    400 fundraises
    Share LP data
    Second year Raise LP survey
    Every year gets better
    100 respondents = 2x
    So, let’s get into the LP data already!


    Emerging Managers and Micro-VC is a very important part our practice at FRB
    We believe that the best VCs of tomorrow are the emerging managers of today
    We already work with many of you in this room - thank you for your support

    Our team has gone through over 400 fundraises with emerging managers
    And I’d like to share the LP data from the survey
    This is the second year we ran the Raise LP survey
    Every year gets better – we had 100 respondents this time, which is 2x last year!
    So, let’s get into the LP data already!
  • Majority of respondents
    Not surprising
    Family offices check sizes
    Fund of funds


    What does the data say?
    Vast majority of respondents were family offices and fund of funds
    Not surprising
    Family offices check sizes are most in line with emerging managers and micro VC
    Fund of funds typically have active mandates to invest to VC

  • Overwhelming
    Breakdown by LP type
    Average Fund I (cite it – FRB 100 EM)
    As expected, the main source capital
    Foundations and pensions
    RIAs


    I know this slide can be a bit overwhelming
    But here’s a breakdown of average commitments by LP type
    The average fund size for a Fund I is $33M – from a survey we conducted at FRB with 100 emerging managers earlier this year
    As we expected, the main source of capital is family office and fund of funds
    Foundations and pensions are typically 10% to 20% of a fund
    So funds over $100M would be best fits
    And RIAs come in different sizes so commitments are pretty diverse too
  • 1/3 capital
    Scales up
    Exception we observed
    Spin out managers
    Often well north of 50%


    About 1/3 of capital is institutional for fund I’s
    Scales to 50% by fund III
    The exception we observed is that spin out managers from bigger platforms have a higher percentage of institutional capital
    Often well north of 50%
  • For non-inst., vast majority
    Why is that?
    Ability to co-invest / pro-rata
    Conversations with LPs


    For non-institutional LPs, we found that the vast majority ~75% preferred smaller funds
    Why is that?
    Because of their ability to co-invest in future financing rounds through pro-rata
    In fact, the main selling point for micro-VCs for LPs is the ability to coinvest
    Probably many of you have experienced these conversations with LPs

  • New additions of ALL VC
    Fund of funds active
    Skewed data / remove outlier
    Far more family offices
    10,000+ according to


    Important thing to highlight is that these are new additions of ALL VC types to portfolio
    Fund of funds appear to be most active on average
    Skewed data given an outlier
    If we were to remove this outlier from sample set, the number actually looks more similar to 2018 – an average of 4.2 for 2019
    However, it’s important to note that there are far more family offices in both the survey sample set and globally
    10,000+ according to the global family office report



  • More interesting data
    Most active
    Surprising
    Anecdotally / made bets / selectively
    However, positive sign
    Family offices more active
    With emerging managers / alpha


    Now this is probably the more interesting data for this audience
    Again, fund of funds appear to be most active
    Which is surprising to us, in general and anecdotally we hear that fund of funds already made their bets and re-upping w/existing managers and only selectively adding new names
    However, this is a very positive sign and encouraging
    Family offices have become more active within emerging managers space given their check sizes, but also because they don’t have access top tier legacy firms
    With emerging managers they have the best shot at alpha returns


  • Preqin
    LPs who’ve allocated
    Interesting / roster


    According to Preqin, here’s a list of LPs who were active in 2018
    It’ll be interesting to see what this roster looks like for this year

  • Who’s active
    LP preferences
    Let’s start
    Decrease year over year
    Higher interest
    Last year 20 AI funds, 2 this year
    Not sure
    We’ve heard narrow scope / competitive advantage


    Ok we know who’s active
    Now let’s look at LP preferences starting with thematic vs. generalist fund types
    Pronounced decrease in preference for thematic funds year over year
    And higher interest in generalist funds
    Last year 20 AI funds, this year only 2
    Not sure what’s exactly driving this
    We’ve heard that it might be LP’s perception that thematic funds have too narrow of a scope or lack competitive advantage within that theme
  • Similar to last year
    No strong
    Non-institutional LPs preference doubled
    Lower valuations / less noisy


    Similar to last year, there is no strong preference for geographically focused funds
    However, non-institutional LPs preference has nearly doubled
    Might be due to lower valuations and less noisy environments outside of the valley

  • Majority continue to prefer
    However, solo GP
    Non-institutional LPs no preference


    The majority of LPs continue to prefer multiple GPs partnerships
    However, if you’re a solo GP, I wouldn't be overly concerned here
    Nearly 60% of non-institutional LPs expressed that they have no preference or had a preference towards single GP

  • Reinforce family offices
    Surprising
    Our experience, longest sales cycles
    We hear / like pre-existing
    Anecdotally, 1 year
    Data based on LPs pre-existing


    This slides reinforces that family offices are indeed the fastest movers
    Surprising to see fund of funds at 64% and foundations at 58%
    Our experience is that institutional LPs have the longest sales cycles
    We heard that they like pre-existing relationships
    Anecdotally, they like to get to know a manager at least for 1 year before considering allocating
    So the data here might be based on LPs with pre-existing relationships with managers before spinning out




  • Much of the same as last year
    Strategy drift, Premium fees and lack of transparency remain top frustrations for LPs
  • For venture capital, scale
    Market uncertainties
    High valuations
    Bullish and optimistic
    Strong year


    Here’s what the confidence index looks like currently for venture capital
    Might be because of uncertainties around the market, fear of high valuations
    However, fund of funds are most bullish and optimistic
    And we also expect a strong year from both a fundraising and liquidity standpoint

  • On that note, to conclude
    Starting to see M&A / IPO – 12-18 mo
    But, staying private
    Extending liquidity cycles
    As a result,
    LPs focus on / encourage
    Good news! More GP data from Joanna

    Hopefully you found the data useful
    If you want to discuss in detail, reach out to myself Hana Yang and team
    We’ll be here throughout the conference
    Thank you!


    On that note, and to conclude, we’re starting to see more M&A and IPO activity in the last 12-18 months
    But, companies are still staying private longer
    Thus extending liquidity cycles
    As a result, LPs continue to focus on and encourage GPs to take opportunities for liquidity via secondary transactions
    Good news! You’ll hear more about this from the GP data from Joanna


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