Key Takeaways from 100+ Conversations with Venture LPs in 2024
Erik Bruckner, General Partner at Giant Step Capital spoke to over 100 Limited Partners (LPs) this year, and certain criteria have consistently emerged as top priorities when evaluating venture capital firms.
LPs look beyond just financial returns—they focus on how a VC firm differentiates itself, supports its portfolio companies, and navigates long-term strategies. Below are the most important criteria collected from these discussions.
Top Criteria Limited Partners Use to Evaluate Venture Capital Firms
1. Team
The strength and cohesion of the team are paramount. LPs look for VC firms led by experienced professionals with complementary skills, shared values, and a proven ability to collaborate. A strong team not only drives success but also signals resilience in the face of challenges. LPs want to see a combination of leadership, expertise, and alignment of vision among partners.
2. Sourcing Differentiation
How a VC firm sources deals can be a critical differentiator. LPs are drawn to firms that have a unique edge in discovering promising startups. Whether it's access to an exclusive network, deep domain expertise, or innovative deal flow strategies, LPs want to back VCs that can consistently find high-potential opportunities others may miss.
3. Decision/Selection Process
LPs scrutinize a firm’s decision-making process. They want to know how VCs evaluate startups and what factors influence their investment decisions. Firms that demonstrate a thorough, data-driven, and disciplined approach to selecting investments often inspire confidence. LPs value clear frameworks for assessing risk, growth potential, and market fit.
4. Portfolio Support
Supporting portfolio companies post-investment is crucial. LPs seek VCs who are actively engaged with founders—offering not just capital but strategic guidance, mentorship, and access to networks. A VC firm that can help startups scale, solve problems, and navigate challenges is highly attractive to LPs who want to see long-term success in their investments.
5. Sector Thesis
Having a clear, well-defined sector thesis is another critical factor. LPs are drawn to VCs who focus on specific industries or technologies where they have deep expertise and insights. A firm’s ability to articulate why they are investing in particular sectors and how they foresee growth in those areas provides confidence to LPs about the firm's strategic direction.
6. Track Record
A VC firm’s track record is a key indicator of future performance. LPs look at the firm’s history of successful exits, the growth of portfolio companies, and overall financial returns. However, LPs also consider how the firm achieved those results—whether through luck, timing, or a repeatable process. Strong performance, especially in challenging market environments, holds significant weight.
7. Model/Deployment Strategy
LPs care about how a firm deploys its capital. Are they making a few high-conviction bets, or are they spreading investments across a broad range of startups? A clear and coherent deployment strategy demonstrates discipline and thoughtful planning. LPs want to understand the rationale behind the firm’s investment pacing, check sizes, and reserve allocation for follow-on rounds.
8. Network
A strong network can make or break a VC firm’s success. LPs evaluate the depth and quality of a VC’s connections—whether to other investors, corporate partners, or industry leaders. A well-connected VC can leverage their network to benefit portfolio companies, gain insights into emerging trends, and access valuable deal flow.
9. Long-Term Vision
LPs invest in VC firms for the long haul, so having a clear long-term vision is critical. They want to understand the firm’s goals over the next 5, 10, or 20 years. VCs that can articulate how they plan to evolve, adapt to market changes, and build a lasting impact in their chosen sectors often stand out to LPs seeking a stable, future-oriented partner.
10. Why Now
LPs frequently ask, “Why now?” They want to know why this is the right time for the VC firm to execute its strategy. Whether it’s due to technological advancements, market shifts, or unique opportunities in the startup ecosystem, VCs must convincingly explain why their investment thesis is relevant at this moment in time.
11. References
Lastly, LPs put significant weight on references. A VC firm’s reputation among founders, co-investors, and other LPs can be a determining factor in whether or not they secure backing. Positive references signal trust, reliability, and professionalism—qualities that LPs highly value.
These criteria provide a roadmap for how LPs assess venture firms, from evaluating team dynamics and sourcing strategies to measuring long-term vision and network strength. For VCs seeking to raise capital, aligning with these key priorities can make a crucial difference in gaining LP confidence and securing commitments.
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