Viewing the Venture World as an LP

After we sold Pardot, I decided to invest in a few venture funds as a limited partner. While I want to receive great returns (e.g. 3x cash on cash), I’m even more interested in understanding how venture works and what it looks like from the inside. After a number of conversations, quarterly updates, and annual meetings, I have a few thoughts on the venture world as it operates in Atlanta:

  • Making good returns is much more difficult than it seems. While there isn’t much venture capital locally, it’s still difficult to find investable opportunities.
  • Most of the Atlanta-based venture firms do a substantial number of deals outside of Georgia.
  • Even investing in startups with a minimum of a million in revenue and great growth rates doesn’t guarantee success. In fact, several investments in companies that met that criteria became worthless.
  • Investments in startups and entrepreneurs that are a dud take substantially more time and energy than the ones that do well, so picking correctly at the onset is more critical than expected.
  • Valuations are a major topic, with a heavy focus on getting good deals (read: low valuations), as the goal is to swing for singles and doubles.

Being a limited partner in several venture funds has given me a greater appreciation for the difficulty of being an institutional investor. I’m looking forward to learning more as the funds progress through their lifecycle.

What else? What are some more thoughts on the venture world from the inside?

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