Learn some ways to research, pitch, and negotiate with limited partners (LPs) as a venture capitalist (VC) who wants to raise funds for your firm.

Mastering the art of negotiation can be a manageable task. Following these essential strategies: 1. Create a strategic negotiation plan, prioritizing what terms matter most and where you're willing to compromise. 2. Shift your focus from competition to collaboration, aiming for mutual agreement instead of a win-lose situation. 3. Maintain a strong ethical stance while remaining cautiously transparent, building trust for a sustainable relationship. 4. Recognize when it's time to walk away, armed with a well-defined plan that outlines your non-negotiable terms. 5. Gain the upper hand by understanding your potential investors' pain points and preferences, using this knowledge to your advantage in negotiations.

What are some ways to prepare for a negotiation with LPs?

Negotiating with limited partners (LPs) is a crucial skill for venture capitalists (VCs) who want to raise funds for their firms and invest in promising startups. However, preparing for a negotiation with LPs can be challenging, as they have different expectations, preferences, and goals than VCs. In this article, we will share some ways to prepare for a negotiation with LPs, based on our experience and insights from industry experts.

1 Know your LPs

Before you enter a negotiation with LPs, you need to do your homework and research them thoroughly. You should understand their investment strategy, criteria, portfolio, track record, risk appetite, and return expectations. You should also know their values, culture, personality, and communication style. This will help you tailor your pitch, anticipate their questions and objections, and build rapport and trust with them.

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Wojciech Drewczyński

Operating Partner at Balnord | Poland & Baltics | Deep Tech & Data-driven Software
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Both LPs and GPs must negotiate well and be satisfied with the outcome of the Limited Partnership Agreement. Each LP has different priorities and, therefore, spends time on different terms. Approach every negotiation like building a long-term partnership. The key is to get on the same page. As a GP, take the time to understand what motivates the LPs, and don't hesitate to ask for clarification when needed. It's essential to know how your terms impact the LPs, so don't be shy. Just ask! Be open to negotiating with more LPs than you may need, as some may drop out even after they verbally commit to your fund.

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2 Know your fund

You also need to know your fund inside out and be able to communicate its value proposition clearly and convincingly. You should have a compelling story, vision, and mission for your fund, as well as a well-defined investment thesis, focus, and differentiation. You should also have a solid track record, team, network, and pipeline of deals. You should be prepared to share your fund's performance, metrics, milestones, and projections, as well as your due diligence, governance, and exit processes.

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3 Know your terms

Another important aspect of preparing for a negotiation with LPs is to know your terms and be ready to justify and defend them. You should have a clear idea of how much capital you want to raise, what fees and carry you will charge, what rights and obligations you will offer and expect, and what terms you are willing to negotiate and compromise on. You should also benchmark your terms against the market and your peers, and be aware of the legal and regulatory implications of your terms.

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Wojciech Drewczyński

Operating Partner at Balnord | Poland & Baltics | Deep Tech & Data-driven Software
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Get practical and summarize the key terms before diving into fundraising! That'll give you and your partners a crystal-clear idea of what to expect and what future Limited Partnership Agreement would include. Prepare the main terms, including: - Fund size - Investment strategy - Fee structure - GP commitment - Profit sharing - Investment period - Partnership term You can use this summary to gather valuable feedback from LPs and see if they agree with our plan. The summary of terms is a first pass on what will eventually become the LPA.

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4 Know your BATNA

BATNA stands for best alternative to a negotiated agreement, and it refers to the option you have if the negotiation fails or reaches an impasse. Knowing your BATNA will help you assess the attractiveness and feasibility of the offers and counteroffers you receive from LPs, and determine your reservation point, or the minimum acceptable outcome. You should also try to estimate the BATNA of the LPs, and use it to influence their perception of the value of your fund.

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5 Know your style

Your negotiation style is the way you approach and conduct the negotiation with LPs, and it can have a significant impact on the outcome and the relationship. You should be aware of your own strengths and weaknesses as a negotiator, and adapt your style to the situation and the counterpart. You should also be mindful of the cultural and emotional aspects of the negotiation, and avoid common pitfalls such as overconfidence, anchoring, framing, and escalation of commitment.

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6 Know your process

The negotiation process with LPs is not a one-time event, but a series of interactions that can span months or even years. You should have a clear plan and timeline for each stage of the process, from the initial contact and pitch, to the due diligence and term sheet, to the closing and post-closing. You should also have a clear communication strategy, and keep the LPs informed, engaged, and committed throughout the process. You should also be prepared to handle multiple negotiations with different LPs simultaneously, and manage the expectations and interests of all parties involved.

Add your perspective

Wojciech Drewczyński

Operating Partner at Balnord | Poland & Baltics | Deep Tech & Data-driven Software
Report contribution
Mastering the art of negotiation can be a manageable task. Following these essential strategies: 1. Create a strategic negotiation plan, prioritizing what terms matter most and where you're willing to compromise. 2. Shift your focus from competition to collaboration, aiming for mutual agreement instead of a win-lose situation. 3. Maintain a strong ethical stance while remaining cautiously transparent, building trust for a sustainable relationship. 4. Recognize when it's time to walk away, armed with a well-defined plan that outlines your non-negotiable terms. 5. Gain the upper hand by understanding your potential investors' pain points and preferences, using this knowledge to your advantage in negotiations.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are some ways to prepare for a negotiation with LPs?

1

2

3

4

5

6

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1 Know your LPs

2 Know your fund

3 Know your terms

4 Know your BATNA

5 Know your style

6 Know your process

7 Here’s what else to consider

Venture Capital

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What are some ways to prepare for a negotiation with LPs?

1

2

3

4

5

6

7

1 Know your LPs

2 Know your fund

3 Know your terms

4 Know your BATNA

5 Know your style

6 Know your process

7 Here’s what else to consider

Venture Capital

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