Institutional LPs engage us on their VC and PE portfolios to support them in three ways. But they mostly come down to counting peas.
Italian economist Vilfredo Pareto was harvesting peas in his garden in 1896 when he noticed that 20% of the peapods produced 80% of the peas. He noticed that this same 80/20 rule applied to many economic outcomes as well.
At first, this idea was clunkily known as “The Law of the Trivial Many and the Vital Few.” (Vilfredo Pareto wasn’t much of a marketer.)
Later, he got the credit. The idea became known as the “Pareto Principle.” And the 80/20 rule became a tenet of management optimization so central that it’s easy to forget its power. But we see it every day.
Institutional LPs bring us in to deliver three things:
- Insight. We deliver insight about what they own with enhanced reporting.
- Liquidity. We deliver liquidity by executing secondary sales.
- Bandwidth. Where they want deeper help, we deliver bandwidth by taking on day-to-day management of underperforming investees or entire portfolios. We act as replacement GPs, taking on investee governance, underwriting, and even assuming check-writing authority where desired.
What we do ultimately comes down to allowing institutional LPs to focus on what really matters.
Often we find that 80% of LPs’ time is spent on managing investees that are undergoing challenges; or that no longer have strategic value; or that have diminished investment prospects. That kills LPs’ ability to lavish their attention on the 20% of investees that really matter. We give LPs back their bandwidth.
In other words, we allow them to focus 80% of their time on the 20% of peapods that really matter. And we take on the rest.