The Tale of the Nosy LP

Question for VCs: Have you noticed your limited partners demanding a lot more information about your portfolio—all the way down to how you arrived at the valuations for each company you’ve invested in?

I was talking to a veteran VC recently who said he is dealing with way more LP questions than he used to, enough that he sees it eating into time that would be better spent scouting new deals or working with portfolio companies. He has sat down with LPs and gone over every company in the particular fund (or funds) that the LPs have invested in. And he’s been surprised by very specific questions about operational details of the companies in the fund(s).

The most peculiar thing is that the VC isn’t sure why it’s happening. Mind you, this is not a troubled firm born in the dot-com days. It’s been around for a quite a long time, has raised more than half a dozen funds, and has a stable general partnership.

I asked several other VCs if they have noticed their LPs asking more granular questions, but all of them said they hadn’t noticed any significant changes in LP behavior. One suggested that this may be a case where the LP is considering selling its stake on the secondary market and wants as much information about the portfolio as it can get to make sure it gets the best price if it were to sell.

One LP I spoke with said that it was asking more pointed questions simply because it has the time to do so. The fund-raising market is virtually dead, so the LP is using the time it would normally spend on due diligence for new investments to take a much closer look at the funds in its portfolio.

For the VCs out there, I’d love to get your perspective on this. Have you noticed your LPs asking detailed questions about the companies in your portfolio? And do you think these are legitimate questions or just a big time suck?